Parts for H. Rept. 110-584

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110th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 110-584
======================================================================
TAXPAYER ASSISTANCE AND SIMPLIFICATION ACT OF 2008
_______
April 14, 2008.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Rangel, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 5719]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 5719) to amend the Internal Revenue Code of 1986 to
conform return preparer penalty standards, delay implementation
of withholding taxes on government contractors, enhance
taxpayer protections, assist low-income taxpayers, and for
other purposes, having considered the same, reports favorably
thereon with an amendment and recommends that the bill as
amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE, ETC.
(a) Short Title.--This Act may be cited as the ``Taxpayer Assistance
and Simplification Act of 2008''.
(b) Amendment of 1986 Code.--Except as otherwise expressly provided,
whenever in this Act an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title, etc.
Sec. 2. Modification of penalty on understatement of taxpayer's
liability by tax return preparer.
Sec. 3. Removal of cellular telephones (or similar telecommunications
equipment) from listed property.
Sec. 4. Delay of application of withholding requirement on certain
governmental payments for goods and services.
Sec. 5. Elderly and disabled individuals receiving in-home care under
certain government programs not subject to employment tax provisions.
Sec. 6. Referrals to low income taxpayer clinics permitted.
Sec. 7. Programs for the benefit of low-income taxpayers.
Sec. 8. EITC outreach.
Sec. 9. Prohibition on IRS debt indicators for predatory refund
anticipation loans.
Sec. 10. Study on delivery of tax refunds.
Sec. 11. Extension of time for return of property for wrongful levy.
Sec. 12. Individuals held harmless on wrongful levy, etc., on
individual retirement plan.
Sec. 13. Taxpayer notification of suspected identity theft.
Sec. 14. Repeal of authority to enter into private debt collection
contracts.
Sec. 15. Clarification of IRS unclaimed refund authority.
Sec. 16. Prohibition on misuse of Department of the Treasury names and
symbols.
Sec. 17. Substantiation of amounts paid or distributed out of health
savings account.
Sec. 18. Certain domestically controlled foreign persons performing
services under contract with United States Government treated as
American employers.
Sec. 19. Time for payment of corporate estimated tax.
SEC. 2. MODIFICATION OF PENALTY ON UNDERSTATEMENT OF TAXPAYER'S
LIABILITY BY TAX RETURN PREPARER.
(a) In General.--Subsection (a) of section 6694 (relating to
understatement due to unreasonable positions) is amended to read as
follows:
``(a) Understatement Due to Unreasonable Positions.--
``(1) In general.--If a tax return preparer--
``(A) prepares any return or claim of refund with
respect to which any part of an understatement of
liability is due to a position described in paragraph
(2), and
``(B) knew (or reasonably should have known) of the
position,
such tax return preparer shall pay a penalty with respect to
each such return or claim in an amount equal to the greater of
$1,000 or 50 percent of the income derived (or to be derived)
by the tax return preparer with respect to the return or claim.
``(2) Unreasonable position.--
``(A) In general.--Except as otherwise provided in
this paragraph, a position is described in this
paragraph unless there is or was substantial authority
for the position.
``(B) Disclosed positions.--If the position was
disclosed as provided in section 6662(d)(2)(B)(ii)(I)
and is not a position to which subparagraph (C)
applies, the position is described in this paragraph
unless there is a reasonable basis for the position.
``(C) Tax shelters and reportable transactions.--If
the position is with respect to a tax shelter (as
defined in section 6662(d)(2)(C)(ii)) or a reportable
transaction to which section 6662A applies, the
position is described in this paragraph unless it is
reasonable to believe that the position would more
likely than not be sustained on its merits.
``(3) Reasonable cause exception.--No penalty shall be
imposed under this subsection if it is shown that there is
reasonable cause for the understatement and the tax return
preparer acted in good faith.''.
(b) Effective Date.--The amendment made by this section shall apply--
(1) in the case of a position described in subparagraph (A)
or (B) of section 6694(a)(2) of the Internal Revenue Code of
1986 (as amended by this section), to returns prepared after
May 25, 2007, and
(2) in the case of a position described in subparagraph (C)
of such section (as amended by this section), to returns
prepared for taxable years ending after the date of the
enactment of this Act.
SEC. 3. REMOVAL OF CELLULAR TELEPHONES (OR SIMILAR TELECOMMUNICATIONS
EQUIPMENT) FROM LISTED PROPERTY.
(a) In General.--Subparagraph (A) of section 280F(d)(4) (defining
listed property) is amended by inserting ``and'' at the end of clause
(iv), by striking clause (v), and by redesignating clause (vi) as
clause (v).
(b) Effective Date.--The amendment made by subsection (a) shall apply
to taxable years beginning after December 31, 2008.
SEC. 4. DELAY OF APPLICATION OF WITHHOLDING REQUIREMENT ON CERTAIN
GOVERNMENTAL PAYMENTS FOR GOODS AND SERVICES.
(a) In General.--Subsection (b) of section 511 of the Tax Increase
Prevention and Reconciliation Act of 2005 is amended by striking
``December 31, 2010'' and inserting ``December 31, 2011''.
(b) Report to Congress.--Not later than 6 months after the date of
the enactment of this Act, the Secretary of the Treasury shall submit
to the Committee on Ways and Means of the House of Representatives and
the Committee on Finance of the Senate a report with respect to the
withholding requirements of section 3402(t) of the Internal Revenue
Code of 1986, including a detailed analysis of--
(1) the problems, if any, which are anticipated in
administering and complying with such requirements,
(2) the burdens, if any, that such requirements will place on
governments and businesses (taking into account such mechanisms
as may be necessary to administer such requirements), and
(3) the application of such requirements to small
expenditures for services and goods by governments.
SEC. 5. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE UNDER
CERTAIN GOVERNMENT PROGRAMS NOT SUBJECT TO
EMPLOYMENT TAX PROVISIONS.
(a) In General.--Chapter 25 (relating to general provisions relating
to employment taxes) is amended by adding at the end the following new
section:
``SEC. 3511. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE
UNDER CERTAIN GOVERNMENT PROGRAMS.
``(a) In General.--In the case of amounts paid under a home care
service program to a home care service provider by the fiscal
administrator of such program--
``(1) the home care service recipient shall not be liable for
the payment of any taxes imposed under this subtitle with
respect to amounts paid for the provision of services under
such program, and
``(2) the fiscal administrator shall be so liable.
``(b) Definitions.--For purposes of this section--
``(1) Home care service program.--The term `home care service
program' means a State or local government program--
``(A) any portion of which is funded with Federal
funds, and
``(B) under which domestic services are provided to
elderly or disabled individuals in their homes.
Such term shall not include any program to the extent home care
service recipients make payments to the home care service
providers for such in-home domestic services.
``(2) Home care service provider.--The term `home care
service provider' means any individual who provides domestic
services to a home care service recipient under a home care
service program.
``(3) Home care service recipient.--The term `home care
service recipient' means any individual receiving domestic
services under a home care service program.
``(4) Fiscal administrator.--The term `fiscal administrator'
means any person or governmental entity who pays amounts under
a home care service program to home care service providers for
the provision of domestic services under such program.
``(c) Returns by Fiscal Administrator.--For purposes of this
section--
``(1) In general.--Returns relating to taxes imposed or
amounts required to be withheld under this subtitle shall be
made under the identifying number of the fiscal administrator.
``(2) Identification of service recipient.--The fiscal
administrator shall, to the extent required under regulations
prescribed by the Secretary, make a return setting forth--
``(A) the name, address, and identifying number of
each home care service recipient for whom amounts are
paid by such fiscal administrator under the home care
services program, and
``(B) such other information as the Secretary may
require.
``(d) Regulations.--The Secretary may prescribe such regulations or
other guidance as may be necessary to carry out the purposes of this
section, including requiring deposits of any tax imposed under this
subtitle.''.
(b) Service Recipient Identification Return Treated as Information
Return.--Paragraph (3) of section 6724(d) is amended by striking
``and'' at the end of subparagraph (C)(ii), by striking the period at
the end of subparagraph (D)(ii) and inserting ``, and'', and by adding
at the end the following new subparagraph:
``(E) any requirement under section 3511(c)(2).''.
(c) Clerical Amendment.--The table of sections for chapter 25 is
amended by adding at the end the following new item:
``Sec. 3511. Elderly and disabled individuals receiving in-home care
under certain government programs.''.
(d) Effective Date.--The amendments made by this section shall apply
to amounts paid after December 31, 2008.
SEC. 6. REFERRALS TO LOW INCOME TAXPAYER CLINICS PERMITTED.
(a) In General.--Subsection (c) of section 7526 of the Internal
Revenue Code of 1986 is amended by adding at the end the following new
paragraph:
``(6) Treasury employees permitted to refer taxpayers to
qualified low-income taxpayer clinics.--Notwithstanding any
other provision of law, officers and employees of the
Department of the Treasury may refer taxpayers for advice and
assistance to qualified low-income taxpayer clinics receiving
funding under this section.''.
(b) Effective Date.--The amendment made by this section shall apply
to referrals made after the date of the enactment of this Act.
SEC. 7. PROGRAMS FOR THE BENEFIT OF LOW-INCOME TAXPAYERS.
(a) Volunteer Income Tax Assistance Programs.--Chapter 77 (relating
to miscellaneous provisions) is amended by inserting after section 7526
the following new section:
``SEC. 7526A. VOLUNTEER INCOME TAX ASSISTANCE PROGRAMS.
``(a) In General.--The Secretary may, subject to the availability of
appropriated funds, make grants to provide matching funds for the
development, expansion, or continuation of volunteer income tax
assistance programs.
``(b) Volunteer Income Tax Assistance Program.--For purposes of this
section, the term `volunteer income tax assistance program' means a
program--
``(1) which does not charge taxpayers for its return
preparation services,
``(2) which operates programs to assist low and moderate-
income (as determined by the Secretary) taxpayers in preparing
and filing their Federal income tax returns, and
``(3) in which all of the volunteers who assist in the
preparation of Federal income tax returns meet the requirements
prescribed by the Secretary.
``(c) Special Rules and Limitations.--
``(1) Aggregate limitation.--Unless otherwise provided by
specific appropriation, the Secretary shall not allocate more
than $10,000,000 per year (exclusive of costs of administering
the program) to grants under this section.
``(2) Other applicable rules.--Rules similar to the rules
under paragraphs (2) through (6) of section 7526(c) shall apply
with respect to the awarding of grants to volunteer income tax
assistance programs.''.
(b) Increase in Authorized Grants for Low-Income Taxpayer Clinics.--
Paragraph (1) of section 7526(c) (relating to aggregate limitation) is
amended by striking ``$6,000,000'' and inserting ``$10,000,000''.
(c) Clerical Amendments.--
(1) Section 7526(c)(5) is amended by inserting ``qualified''
before ``low-income''.
(2) The table of sections for chapter 77 is amended by
inserting after the item relating to section 7526 the following
new item:
``Sec. 7526A. Volunteer income tax assistance programs.''.
(d) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
SEC. 8. EITC OUTREACH.
(a) In General.--Section 32 (relating to earned income) is amended by
adding at the end the following new subsection:
``(n) Notification of Potential Eligibility for Credit and Refund.--
``(1) In general.--To the extent possible and on an annual
basis, the Secretary shall provide to each taxpayer who--
``(A) for any preceding taxable year for which credit
or refund is not precluded by section 6511, and
``(B) did not claim the credit under subsection (a)
but may be allowed such credit for any such taxable
year based on return or return information (as defined
in section 6103(b)) available to the Secretary,
notice that such taxpayer may be eligible to claim such credit
and a refund for such taxable year.
``(2) Notice.--Notice provided under paragraph (1) shall be
in writing and sent to the last known address of the
taxpayer.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 9. PROHIBITION ON IRS DEBT INDICATORS FOR PREDATORY REFUND
ANTICIPATION LOANS.
(a) In General.--Subsection (f) of section 6011 (relating to
promotion of electronic filing) is amended by adding at the end the
following new paragraph:
``(3) Prohibition on irs debt indicators for predatory refund
anticipation loans.--
``(A) In general.--In carrying out any program under
this subsection, the Secretary shall not provide a debt
indicator to any person with respect to any refund
anticipation loan if the Secretary determines that the
business practices of such person involve refund
anticipation loans and related charges and fees that
are predatory.
``(B) Refund anticipation loan.--For purposes of this
paragraph, the term `refund anticipation loan' means a
loan of money or of any other thing of value to a
taxpayer secured by the taxpayer's anticipated receipt
of a Federal tax refund.
``(C) IRS debt indicator.--For purposes of this
paragraph, the term `debt indicator' means a
notification provided through a tax return's
acknowledgment file that a refund will be offset to
repay debts for delinquent Federal or State taxes,
student loans, child support, or other Federal agency
debt.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 10. STUDY ON DELIVERY OF TAX REFUNDS.
(a) In General.--The Secretary of the Treasury, in consultation with
the National Taxpayer Advocate, shall conduct a study on the
feasibility of delivering tax refunds on debit cards, prepaid cards,
and other electronic means to assist individuals that do not have
access to financial accounts or institutions.
(b) Report.--Not later than 1 year after the date of the enactment of
this Act, the Secretary of the Treasury shall submit a report to
Congress containing the results of the study conducted under subsection
(a).
SEC. 11. EXTENSION OF TIME FOR RETURN OF PROPERTY FOR WRONGFUL LEVY.
(a) Extension of Time for Return of Property Subject to Levy.--
Subsection (b) of section 6343 (relating to return of property) is
amended by striking ``9 months'' and inserting ``2 years''.
(b) Period of Limitation on Suits.--Subsection (c) of section 6532
(relating to suits by persons other than taxpayers) is amended--
(1) in paragraph (1) by striking ``9 months'' and inserting
``2 years'', and
(2) in paragraph (2) by striking ``9-month'' and inserting
``2-year''.
(c) Effective Date.--The amendments made by this section shall apply
to--
(1) levies made after the date of the enactment of this Act,
and
(2) levies made on or before such date if the 9-month period
has not expired under section 6343(b) of the Internal Revenue
Code of 1986 (without regard to this section) as of such date.
SEC. 12. INDIVIDUALS HELD HARMLESS ON WRONGFUL LEVY, ETC., ON
INDIVIDUAL RETIREMENT PLAN.
(a) In General.--Section 6343 (relating to authority to release levy
and return property) is amended by adding at the end the following new
subsection:
``(f) Individuals Held Harmless on Wrongful Levy, etc. on Individual
Retirement Plan.--
``(1) In general.--If the Secretary determines that an
individual retirement plan has been levied upon in a case to
which subsection (b) or (d)(2)(A) applies, an amount equal to
the sum of--
``(A) the amount of money returned by the Secretary
on account of such levy, and
``(B) interest paid under subsection (c) on such
amount of money,
may be deposited into such individual retirement plan or any
other individual retirement plan (other than an endowment
contract) to which a rollover from the plan levied upon is
permitted. An amount may not be deposited into a Roth IRA under
the preceding sentence unless the individual retirement plan
levied upon was a Roth IRA at the time of such levy.
``(2) Treatment as rollover.--If amounts are deposited into
an individual retirement plan under paragraph (1) not later
than the 60th day after the date on which the individual
receives the amounts under paragraph (1)--
``(A) such deposit shall be treated as a rollover
described in section 408(d)(3)(A)(i),
``(B) to the extent the deposit includes interest
paid under subsection (c), such interest shall not be
includible in gross income, and
``(C) such deposit shall not be taken into account
under section 408(d)(3)(B).
For purposes of subparagraph (B), an amount shall be treated as
interest only to the extent that the amount deposited exceeds
the amount of the levy.
``(3) Refund, etc., of income tax on levy.--If any amount is
includible in gross income for a taxable year by reason of a
levy referred to in paragraph (1) and any portion of such
amount is treated as a rollover under paragraph (2), any tax
imposed by chapter 1 on such portion shall not be assessed, and
if assessed shall be abated, and if collected shall be credited
or refunded as an overpayment made on the due date for filing
the return of tax for such taxable year.
``(4) Interest.--Notwithstanding subsection (d), interest
shall be allowed under subsection (c) in a case in which the
Secretary makes a determination described in subsection
(d)(2)(A) with respect to a levy upon an individual retirement
plan.''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid under subsections (b), (c), and (d)(2)(A) of section
6343 of the Internal Revenue Code of 1986 after the date of the
enactment of this Act.
SEC. 13. TAXPAYER NOTIFICATION OF SUSPECTED IDENTITY THEFT.
(a) In General.--Chapter 77 (relating to miscellaneous provisions) is
amended by adding at the end the following new section:
``SEC. 7529. NOTIFICATION OF SUSPECTED IDENTITY THEFT.
``If, in the course of an investigation under the internal revenue
laws, the Secretary determines that there was or may have been an
unauthorized use of the identity of the taxpayer or a dependent of the
taxpayer, the Secretary shall, to the extent permitted by law--
``(1) as soon as practicable and without jeopardizing such
investigation, notify the taxpayer of such determination, and
``(2) if any person is criminally charged by indictment or
information with respect to such unauthorized use, notify such
taxpayer as soon as practicable of such charge.''.
(b) Clerical Amendment.--The table of sections for chapter 77 is
amended by adding at the end the following new item:
``Sec. 7529. Notification of suspected identity theft.''.
(c) Effective Date.--The amendments made by this section shall apply
to determinations made after the date of the enactment of this Act.
SEC. 14. REPEAL OF AUTHORITY TO ENTER INTO PRIVATE DEBT COLLECTION
CONTRACTS.
(a) In General.--Subchapter A of chapter 64 is amended by striking
section 6306.
(b) Conforming Amendments.--
(1) Subchapter B of chapter 76 is amended by striking section
7433A.
(2) Section 7811 is amended by striking subsection (g).
(3) Section 1203 of the Internal Revenue Service
Restructuring Act of 1998 is amended by striking subsection
(e).
(4) The table of sections for subchapter A of chapter 64 is
amended by striking the item relating to section 6306.
(5) The table of sections for subchapter B of chapter 76 is
amended by striking the item relating to section 7433A.
(c) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall take
effect on the date of the enactment of this Act.
(2) Exception for existing contracts, etc.--The amendments
made by this section shall not apply to any contract which was
entered into before March 1, 2008, and is not renewed or
extended on or after such date.
(3) Unauthorized contracts and extensions treated as void.--
Any qualified tax collection contract (as defined in section
6306 of the Internal Revenue Code of 1986, as in effect before
its repeal) which is entered into on or after March 1, 2008,
and any extension or renewal on or after such date of any
qualified tax collection contract (as so defined), shall be
void.
SEC. 15. CLARIFICATION OF IRS UNCLAIMED REFUND AUTHORITY.
Paragraph (1) of section 6103(m) (relating to tax refunds) is amended
by inserting ``, and through any other means of mass communication,''
after ``media''.
SEC. 16. PROHIBITION ON MISUSE OF DEPARTMENT OF THE TREASURY NAMES AND
SYMBOLS.
(a) In General.--Subsection (a) of section 333 of title 31, United
States Code, is amended by inserting ``Internet domain address,'' after
``solicitation,'' both places it appears.
(b) Penalty for Misuse by Electronic Means.--Subsections (c)(2) and
(d)(1) of section 333 of such Code are each amended by inserting ``or
any other mass communications by electronic means,'' after
``telecast,''.
(c) Effective Date.--The amendments made by this section shall apply
with respect to violations occurring after the date of the enactment of
this Act.
SEC. 17. SUBSTANTIATION OF AMOUNTS PAID OR DISTRIBUTED OUT OF HEALTH
SAVINGS ACCOUNT.
(a) In General.--Paragraph (1) of section 223(f) (relating to amounts
used for qualified medical expenses) is amended by inserting ``(and, in
the case of amounts paid or distributed after December 31, 2010,
substantiated in a manner similar to the substantiation required for
flexible spending arrangements)'' after ``account beneficiary''.
(b) Reports.--Subsection (h) of section 223 (relating to reports) is
amended--
(1) by redesignating paragraphs (1) and (2) as subparagraphs
(A) and (B), respectively,
(2) by moving the text of subparagraphs (A) and (B) (as so
redesignated) and the last sentence 2 ems to the right,
(3) by striking ``(h) Reports.--The Secretary may require--''
and inserting the following:
``(h) Reports.--
``(1) In general.--The Secretary may require--'', and
(4) by adding at the end the following new paragraph:
``(2) Relating to substantiation.--Not later than January 15
of each calendar year after 2011, the trustee of a health
savings account shall make a report regarding such account to
the Secretary and the account beneficiary setting forth--
``(A) the name, address, and identifying number of
the account beneficiary, and
``(B) the amount paid or distributed out of such
account for the preceding calendar year not
substantiated in accordance with subsection (f)(1).''.
(c) Effective Date.--The amendments made by this section shall apply
with respect to amounts paid or distributed out of health savings
accounts after December 31, 2010.
SEC. 18. CERTAIN DOMESTICALLY CONTROLLED FOREIGN PERSONS PERFORMING
SERVICES UNDER CONTRACT WITH UNITED STATES
GOVERNMENT TREATED AS AMERICAN EMPLOYERS.
(a) FICA Taxes.--Section 3121 (relating to definitions) is amended by
adding at the end the following new subsection:
``(z) Treatment of Certain Foreign Persons as American Employers.--
``(1) In general.--If any employee of a foreign person is
performing services in connection with a contract between the
United States Government (or any instrumentality thereof) and
any member of any domestically controlled group of entities
which includes such foreign person, such foreign person shall
be treated for purposes of this chapter as an American employer
with respect to such services performed by such employee.
``(2) Domestically controlled group of entities.--For
purposes of this subsection--
``(A) In general.--The term `domestically controlled
group of entities' means a controlled group of entities
the common parent of which is a domestic corporation.
``(B) Controlled group of entities.--The term
`controlled group of entities' means a controlled group
of corporations as defined in section 1563(a)(1),
except that--
``(i) `more than 50 percent' shall be
substituted for `at least 80 percent' each
place it appears therein, and
``(ii) the determination shall be made
without regard to subsections (a)(4) and (b)(2)
of section 1563.
A partnership or any other entity (other than a
corporation) shall be treated as a member of a
controlled group of entities if such entity is
controlled (within the meaning of section 954(d)(3)) by
members of such group (including any entity treated as
a member of such group by reason of this sentence).
``(3) Liability of common parent.--In the case of a foreign
person who is a member of any domestically controlled group of
entities, the common parent of such group shall be jointly and
severally liable for any tax under this chapter for which such
foreign person is liable by reason of this subsection, and for
any penalty imposed on such person by this title with respect
to any failure to pay such tax or to file any return or
statement with respect to such tax or wages subject to such
tax. No deduction shall be allowed under this title for any
liability imposed by the preceding sentence.
``(4) Coordination.--Paragraph (1) shall not apply to any
services which are covered by an agreement under subsection
(l).
``(5) Cross reference.--For relief from taxes in cases
covered by certain international agreements, see sections
3101(c) and 3111(c).''.
(b) Social Security Benefits.--Subsection (e) of section 210 of the
Social Security Act (42 U.S.C. 410(e)) is amended--
(1) by striking ``(e) The term'' and inserting ``(e)(1) The
term'',
(2) by redesignating clauses (1) through (6) as clauses (A)
through (F), respectively, and
(3) by adding at the end the following new paragraph:
``(2)(A) If any employee of a foreign person is performing services
in connection with a contract between the United States Government (or
any instrumentality thereof) and any member of any domestically
controlled group of entities which includes such foreign person, such
foreign person shall be treated as an American employer with respect to
such services performed by such employee.
``(B) For purposes of this paragraph--
``(i) The term `domestically controlled group of entities'
means a controlled group of entities the common parent of which
is a domestic corporation.
``(ii) The term `controlled group of entities' means a
controlled group of corporations as defined in section
1563(a)(1) of the Internal Revenue Code of 1986, except that--
``(I) `more than 50 percent' shall be substituted for
`at least 80 percent' each place it appears therein,
and
``(II) the determination shall be made without regard
to subsections (a)(4) and (b)(2) of section 1563 of
such Code.
A partnership or any other entity (other than a corporation)
shall be treated as a member of a controlled group of entities
if such entity is controlled (within the meaning of section
954(d)(3) of such Code) by members of such group (including any
entity treated as a member of such group by reason of this
sentence).''.
(c) Effective Date.--The amendment made by this section shall apply
to services performed after the date of the enactment of this Act.
SEC. 19. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAX.
The percentage under subparagraph (C) of section 401(1) of the Tax
Increase Prevention and Reconciliation Act of 2005 in effect on the
date of the enactment of this Act is increased by 0.25 percentage
points.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
PURPOSE
The bill, H.R. 5719, as amended, includes provisions to
enhance taxpayer protections and outreach, delay implementation
of withholding taxes on government payments, and repeal the
authority of the Internal Revenue Service (``IRS'') to use
private debt collection companies, among other purposes.
SUMMARY
Effective as of the date of enactment of the Small Business
and Work Opportunity Tax Act of 2007 (May 25, 2007), the bill
generally conforms the understatement penalty standards for tax
return preparers with those for taxpayers. Effective for
taxable years beginning after December 31, 2008, the bill
removes cellular telephones and similar telecommunications
equipment from the definition of listed property and the
corresponding heightened substantiation requirements. The bill
delays until January 1, 2012, the effective date of section 511
of the Tax Increase Prevention and Reconciliation Act of 2005,
which imposes withholding at the rate of three percent on
certain government payments. Effective for amounts paid after
December 31, 2008, the bill provides that fiscal administrators
directly paying wages to a home care worker under certain State
and local programs are liable for employment taxes, not the
home care recipients. Effective for referrals made after the
date of enactment, the bill allows IRS employees to refer
taxpayers to qualified low-income taxpayer clinics. The bill
codifies volunteer income tax programs to provide low- and
moderate-income taxpayers with tax return preparation and
filing services and increases to $10 million the annual grants
that can be made to existing qualified low-income taxpayer
clinics. Effective after the date of enactment, the bill
expands IRS notice requirements relating to EIC outreach.
Effective on the date of enactment, the bill prohibits the IRS
from providing a debt indicator to any person with respect to a
refund anticipation loan determined by the Secretary to be
predatory. The bill requires an IRS study of the feasibility of
delivering tax refunds on debit cards and by other means.
Generally effective for levies made after the date of
enactment, the bill extends from nine months to two years the
time limits for returning money and the monetary proceeds from
the sale of property that has been wrongfully levied, and for
bringing a civil action for wrongful levy, respectively.
Effective for levied amounts returned to individuals after the
date of enactment, the bill holds individuals harmless on the
improper levy on an individual retirement plan. Effective for
determinations made after the date of enactment, the bill
requires the IRS to (1) notify a taxpayer if the IRS determines
during a tax investigation that there may have been an
unauthorized use of a taxpayer's identity or that of the
taxpayer's dependents (if disclosure will not jeopardize a tax
investigation); and (2) notify the taxpayer if any person is
criminally charged by indictment or information relating to
such unauthorized use The bill repeals the authority for the
IRS to enter into, renew, or extend any private debt collection
contract, except that existing contracts may continue through
their current term without renewal. Effective on the date of
enactment, the bill allows the IRS to use any means of mass
communication, including the internet, to notify taxpayers of
undelivered refunds. The bill clarifies the penalties for the
misuse of Department of the Treasury names and symbols.
Effective for amounts paid or distributed out of a health
savings account after December 31, 2010, the bill requires
substantiation of qualified medical expenses and requires
reporting of unsubstantiated distributions. With respect to
services performed after the date of enactment, the bill
provides that wages paid for services performed by a U.S.
citizen or resident outside the United States under a U.S.
Government contract are subject to employment taxes if the
employer is a foreign subsidiary of a U.S. parent company.
Finally, the bill modifies the July, August, and September 2013
estimated tax payments requirements for corporations with
assets of at least $1 billion.
B. Background and Need for Legislation
Oversight of the IRS's administration of the tax laws often
requires legislative action to enhance taxpayer protections and
facilitate IRS operations. The IRS in administering the Federal
tax laws needs additional tools to assist and reach out to
taxpayers. Moreover, the collection of Federal income taxes is
a core governmental function that should be restricted to IRS
employees. The bill protects taxpayers by repealing the
authorization for the IRS to use private contractors to collect
Federal income taxes, by providing additional taxpayer
protections, and generally bolstering the outreach efforts of
the IRS.
C. Legislative History
Background
H.R. 5719 was introduced in the House of Representatives on
April 8, 2008; and was referred to the Committee on Ways and
Means.
Subcommittee action
On February 13, 2007, the Subcommittee on Oversight of the
Committee on Ways and Means held a hearing on Earned Income Tax
Credit outreach, and took testimony from invited witnesses. On
March 13, 2008, the Subcommittee held a hearing on IRS
operations, budget proposals, and the IRS National Taxpayer
Advocate's annual report.
Committee action
On May 23, 2007, the Committee on Ways and Means held a
hearing on the IRS's use of private debt collection companies
to collect Federal income taxes.
The Committee on Ways and Means marked up the bill, H.R.
5719, on April 9, 2008, and ordered the bill, as amended,
favorably reported.
II. EXPLANATION OF THE BILL
A. Modified Standard for Imposition of Tax Return Preparer Penalties
(Sec. 2 of the Bill and Sec. 6694 of the Code)
PRESENT LAW
Taxpayer standards
Present law imposes accuracy-related penalties on a
taxpayer at a rate of 20 percent of the portion of any
underpayment that is attributable to any substantial
understatement of income tax. In determining whether a
substantial understatement exists, the amount of the
understatement generally is reduced by any portion attributable
to an item if (1) the treatment of the item is supported by
substantial authority, or (2) facts relevant to the tax
treatment of the item were adequately disclosed and there was a
reasonable basis for its tax treatment.
In the case of a tax shelter item of a non-corporate
taxpayer, the substantial understatement penalty does not apply
if the taxpayer had substantial authority for the tax position
and the taxpayer can demonstrate that he or she had a
reasonable belief that the position is ``more likely than not''
the proper treatment. A taxpayer will be considered to have a
reasonable belief that the treatment is more likely than not
the proper treatment if the taxpayer relies upon the opinion of
a professional advisor and the opinion is based upon the
pertinent facts and authorities analyzed similar to the manner
described in the substantial authority standard.\1\
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\1\ Treas. Reg. sec 1.6662-4(g).
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Tax return preparer standards
Prior to enactment of the Small Business and Work
Opportunity Tax Act of 2007, an income tax return preparer who
prepared a tax return with respect to which there was an
understatement of tax that was due to an undisclosed position
for which there was not a realistic possibility of being
sustained on its merits was liable for a $250 penalty. For a
disclosed position, the preparer was liable only if the
position was frivolous.
Legislation enacted as part of the Small Business and Work
Opportunity Tax Act of 2007 broadened the scope of the preparer
penalty by applying it to all tax return preparers and altered
the standards of conduct a tax return preparer is required to
meet in order to avoid the imposition of penalties for the
preparation of a return with respect to which there is an
understatement of tax. A tax return preparer now can be
penalized for preparing a return on which there is an
understatement of tax liability as a result of an
``unreasonable position.'' Any position that a return preparer
does not reasonably believe is more likely than not to be
sustained on its merits is an ``unreasonable position'' unless
the position is disclosed on the return and there is a
reasonable basis for the position.
In general, the term ``tax return preparer'' is broadly
defined as any person who prepares for compensation, or who
employs one or more persons to prepare for compensation, any
return of tax or any claim for refund of tax.\2\ Preparation of
a substantial portion of a return is treated as if it were the
preparation of such return.
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\2\ Sec. 7701(a)(36)(A).
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REASONS FOR CHANGE
The Committee believes that the standards of conduct for
taxpayers and return preparers generally should be uniform. The
Committee believes that the present-law standard for return
preparers, which is generally higher than that for taxpayers,
can result in a conflict of interest for return preparers. The
conflict of interest arises because it is in the interest of a
preparer to advise his taxpayer client to either disclose a tax
position or alter such position in order to avoid the preparer
penalty, even though the taxpayer could legally and
appropriately take the position without disclosure or facing
penalties. This may have the unintended consequence of causing
taxpayers to be less inclined to use the services of
professional tax preparers, which could harm the system of tax
collections. Thus, the Committee believes the standards of
conduct for taxpayers and return preparers generally should be
uniform.
EXPLANATION OF PROVISION
The provision changes the standards for imposition of the
tax return preparer penalty. The preparer standard for
undisclosed positions is reduced to ``substantial authority.''
The preparer standard for disclosed positions is ``reasonable
basis.'' For tax shelters and reportable transactions to which
section 6662A applies (i.e., listed transactions and reportable
transactions with significant avoidance or evasion purposes), a
tax return preparer is required to have a reasonable belief
that such a transaction was more likely than not to be
sustained on its merits.
EFFECTIVE DATE
The provision generally is effective with respect to
returns prepared after May 25, 2007. In the case of tax
shelters and reportable transactions, the provision is
effective for returns prepared for taxable years ending after
the date of enactment.
B. Removal of Cellular Telephones (or Similar Telecommunications
Equipment) From Listed Property (Sec. 3 of the Bill and Sec. 280F of
the Code)
PRESENT LAW
Employer deduction
Property, including cellular telephones and similar
equipment, used in carrying on a trade or business is subject
to the general rules for deducting ordinary and necessary
expenses under section 162. Under these rules, a taxpayer may
properly claim depreciation deductions under the applicable
cost recovery rules for only the portion of the cost of the
property that is attributable to use in a trade or business.\3\
Similarly, the business portion of monthly telecommunication
service is generally deductible, subject to capitalization
rules, as an ordinary and necessary expense of carrying on a
trade or business.
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\3\ Sec. 212 allows deductions for ordinary and necessary expenses
paid or incurred for the production or collection of income.
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In the case of certain listed property, special rules
apply. Listed property generally is defined as (1) any
passenger automobile; (2) any other property used as a means of
transportation; (3) any property of a type generally used for
purposes of entertainment, recreation; or amusement; (4) any
computer or peripheral equipment; (5) any cellular telephone
(or other similar telecommunications equipment); \4\ and (6)
any other property of a type specified in Treasury
regulations.\5\
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\4\ Cellular telephones (or other similar telecommunications
equipment) were added as listed property as part of the Omnibus Budget
Reconciliation Act of 1989, Pub. L. No. 101-239, sec. 7643 (1989).
\5\ Sec. 280F(d)(4)(A).
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For listed property, no deduction is allowed unless the
taxpayer adequately substantiates the expense and business
usage of the property.\6\ Under the applicable regulations, a
taxpayer must substantiate the elements of each expenditure or
use of listed property, including (1) the amount (e.g., cost)
of each separate expenditure and the amount of business or
investment use, based on the appropriate measure (e.g., mileage
for automobiles), and the total use of the property for the
taxable period, (2) the date of the expenditure or use, and (3)
the business purposes for the expenditure or use.\7\ The level
of substantiation for business or investment use of listed
property varies depending on the facts and circumstances. In
general, the substantiation must contain sufficient information
as to each element of every business or investment use.\8\
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\6\ Sec. 274(d)(4).
\7\ Temp. Reg. sec. 1.274-5T(b)(6).
\8\ Temp. Reg. sec. 1.274-5T(c)(2)(ii)(C).
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With regard to the business use of listed property made
available by an employer for use by an employee, the employer
generally may rely on adequate records maintained and retained
by the employee or on the employee's own statement if it is
corroborated by other sufficient evidence, unless the employer
knows or has reason to know that the statement, records, or
other evidence are not accurate.\9\
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\9\ Temp. Reg. sec. 1.274-5T(e)(2)(ii).
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Taxation of employee
Gross income includes all income unless a specific
exclusion applies.\10\ Exclusions from gross income are
provided in the case of certain fringe benefits.\11\ Gross
income does not include the value of de minimis fringe
benefits. A de minimis fringe is any property or service the
value of which is (after taking into account the frequency in
which similar fringes are provided by the employer to the
employer's employees) so small as to make accounting for it
unreasonable or administratively impracticable. An exclusion
from employee gross income also is provided in the case of a
working condition fringe.\12\ A working condition fringe is any
property or services provided to an employee of the employer to
the extent that, if the employee paid for such property or
services, such payment would be allowable as a deduction under
section 162 or 167.\13\ Treasury regulations provide that an
employee may not exclude from gross income as a working
condition fringe the value of listed property provided by an
employer to the employee, unless the employee substantiates for
the period of availability the amount of the exclusion in
accordance with the substantiation requirements discussed
above.\14\ In general, under such requirements, in the case of
listed property, the working condition fringe exception is
allowed only in the case of substantiation of the employee's
personal use of the property and the employer's inclusion of an
appropriate amount (based on such personal use) in the
employee's come.\15\
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\10\ Sec. 61.
\11\ Sec. 132.
\12\ Sec. 132(a)(3).
\13\ Sec. 132(d).
\14\ Temp. Reg. sec. 1.274-5T(e)(1).
\15\ Temp. Reg. sec. 1.274-5T(e)(2).
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Cost recovery
A taxpayer is allowed to recover through annual
depreciation deductions the cost of certain property used in a
trade or business or for the production of income. The amount
of the depreciation deduction allowed with respect to tangible
property for a taxable year is determined under the modified
accelerated cost recovery system (``MACRS''). Under MACRS,
different types of property generally are assigned applicable
recovery periods and depreciation methods. The recovery periods
applicable to most tangible personal property range from three
to 25 years. The depreciation methods generally applicable to
tangible personal property are the 200-percent and 150-percent
declining balance methods, switching to the straight-line
method for the taxable year in which the taxpayer's
depreciation deduction would be maximized.
In the case of certain listed property, special
depreciation rules apply. First, if for the taxable year that
the property is placed in service the use of the property for
trade or business purposes does not exceed 50 percent of the
total use of the property, then the depreciation deduction with
respect to such property is determined under the alternative
depreciation system.\16\ The alternative depreciation system
generally requires the use of the straight-line method and a
recovery period equal to the class life of the property.\17\
Second, if an individual owns or leases listed property that is
used by the individual in connection with the performance of
services as an employee, no depreciation deduction, expensing
allowance, or deduction for lease payments is available with
respect to such use unless the use of the property is for the
convenience of the employer and required as a condition of
employment.\18\
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\16\ Sec. 280F(b)(1). If for any taxable year after the year in
which the property is placed in service the use of the property for
trade or business purposes decreases to 50 percent or less of the total
use of the property, than the amount of depreciation allowed in prior
years in excess of the amount of depreciation that would have been
allowed for such prior years under the alternative depreciation system
is recaptured (i.e., included in gross income) for such taxable year.
\17\ Sec. 168(g).
\18\ Sec. 280F(d)(3).
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REASONS FOR CHANGE
In 1989, when Congress passed a law requiring taxpayers to
document cellular telephone use, cellular telephones were an
expensive perk for executives. Over time, the usage of these
communication devices has become ubiquitous with the
availability of less expensive airtime and unlimited usage
plans. Today, in many cases, these communication devices simply
represent an extension of the business day and workplace. As a
result, the Committee believes that the present law heightened
substantiation requirements place an unnecessary and time-
consuming administrative burden upon taxpayers and should be
eliminated.
EXPLANATION OF PROVISION
The provision removes cellular telephones (or other similar
telecommunications equipment) from the definition of listed
property. Thus, under the provision, the heightened
substantiation requirements that apply to listed property do
not apply to cellular telephones (or other similar
telecommunications equipment).
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2008.
C. Delayed Implementation of Government Withholding Requirement (Sec. 4
of the Bill and Sec. 3402(t) of the Code)
PRESENT LAW
For payments made after December 31, 2010, the Code
requires withholding at a three-percent rate on certain
payments to persons providing property or services made by the
Government of the United States, every State, every political
subdivision thereof, and every instrumentality of the foregoing
(including multi-State agencies). The withholding requirement
applies regardless of whether the government entity making such
payment is the recipient of the property or services. Political
subdivisions of States (or any instrumentality thereof) with
less than $100 million of annual expenditures for property or
services that would otherwise be subject to withholding under
this provision are exempt from the withholding requirement.
Payments subject to the three-percent withholding include
any payment made in connection with a government voucher or
certificate program which functions as a payment for property
or services. For example, payments to a commodity producer
under a government commodity support program are subject to the
withholding requirement. The provision imposes information
reporting requirements on the payments that are subject to
withholding under the provision.
The three-percent withholding requirement does not apply to
any payments made through a Federal, State, or local government
public assistance or public welfare program for which
eligibility is determined by a needs or income test. The three-
percent withholding requirement also does not apply to payments
of wages or to any other payment with respect to which
mandatory (e.g., U.S.-source income of foreign taxpayers) or
voluntary (e.g., unemployment benefits) withholding applies
under present law. The provision does not exclude payments that
are potentially subject to backup withholding under section
3406. If, however, payments are actually being withheld under
backup withholding, withholding does not apply.
The three-percent withholding requirement also does not
apply to the following: payments of interest; payments for real
property; payments to tax-exempt entities or foreign
governments; intra-governmental payments; payments made
pursuant to a classified or confidential contract (as defined
in section 6050M(e)(3)); and payments to government employees
that are not otherwise excludable from the new withholding
provision with respect to the employees' services as employees.
REASONS FOR CHANGE
The Committee understands that the three-percent
withholding requirement presents a number of challenges for the
government entities and taxpayers subject to the requirement.
The Committee believes the Treasury should conduct a study of
the issues confronting both businesses and governments in
complying with the three-percent requirement, as well as the
issues confronting Treasury and the IRS in administering such
requirement: Thus, the Committee believes it is appropriate to
delay the effective date of the three-percent withholding
requirement by one year to allow the Secretary further time to
study issues associated with the requirement and to provide
Congress with time to review and respond to the results of such
study.
EXPLANATION OF PROVISION
The provision delays the effective date for the three-
percent withholding requirement. Under the provision, the
requirement applies to payments made after December 31, 2011.
The provision directs the Secretary to study issues
associated with the three-percent withholding requirement,
including (1) the problems, if any, which are anticipated in
administering and complying with such requirement, (2) the
burdens, if any, that such requirements will place on small
businesses (taking into account such mechanisms as may be
necessary to administer such requirements), and (3) the
application of such requirements to small expenditures for
services and goods by governments.
The Secretary is to submit his report to the Senate
Committee on Finance and House Committee on Ways and Means no
later than six months after the date of enactment.
EFFECTIVE DATE
The provision is effective on the date of enactment.
D. Employment Tax Treatment of Home Care Service Recipients (Sec. 5 of
the Bill and Sec. 3511 of the Code)
PRESENT LAW
In general
Employment taxes generally consist of the taxes under the
Federal Insurance Contributions Act (``FICA''), the tax under
the Federal Unemployment Tax Act (``FUTA''), and income taxes
required to be withheld by employers from wages paid to
employees (``income tax withholding'').\19\
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\19\ Secs. 3101-3128 (FICA), 3201-3241 (the Railroad Retirement Tax
Act), 3301-3311 (FUTA), and 3401-3404 (income tax withholding).
Sections 3501-3510 provide additional rules.
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FICA tax consists of two parts: (1) old age, survivor, and
disability insurance (``OASDI''), which correlates to the
Social Security program that provides monthly benefits after
retirement, disability, or death; and (2) Medicare hospital
insurance (``HI''). The OASDI tax rate is 6.2 percent on both
the employee and employer (for a total rate of 12.4 percent).
The OASDI tax rate applies to wages up to the OASDI wage base
($102,000 for 2008). The HI tax rate is 1.45 percent on both
the employee and the employer (for a total rate of 2.9
percent). Unlike the OASDI tax, the HI tax is not limited to a
specific amount of wages, but applies to all wages.
Under FUTA, employers must pay a tax of 62 percent of wages
up to the FUTA wage base of $7,000. An employer may take a
credit against its FUTA tax liability for its contributions to
a State unemployment fund and, in certain cases, an additional
credit for contributions that would have been required if the
employer had been subject to a higher contribution rate under
State law. For purposes of the credit, contributions means
payments required by State law to be made by an employer into
an unemployment fund, to the extent the payments are made by
the employer without being deducted or deductible from
employees' remuneration.
Employers generally are required to withhold income taxes
from wages paid to employees. Withholding rates vary depending
on the amount of wages paid, the length of the payroll period,
and the number of withholding allowances claimed by the
employee.
Wages paid to employees, and FICA and income taxes withheld
from the wages, are required to be reported on employment tax
returns (Forms 940 and 941) and on Form W-2.\20\
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\20\ Secs. 6011 and 6051.
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A number of special rules apply in the case of household
employees. An exception from FICA exists in the case of
domestic service in a private home if the cash remuneration
paid during the year by the employer to the employee for such
service is less than $1,600 (for 2008).\21\
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\21\ Sec. 3121(a)(7)(B).
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An employer of a household employee is liable for FUTA if
the employer paid wages of $1,000 for such service in any
calendar quarter in the calendar year or the preceding calendar
year.\22\ An employer of a household employee is not required
to withhold Federal income taxes from wages paid to household
employees.\23\ Household employers may report employment taxes
annually on Schedule H (filed with their annual Federal income
tax return) rather than quarterly on Form 941.
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\22\ Sec. 3306(a)(3).
\23\ Sec. 3401(a)(3).
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Responsibility for employment tax compliance
Employment tax responsibility generally rests with the
person who is the employer of an employee under a common-law
test that has been incorporated into Treasury regulations.\24\
Under the regulations, an employer-employee relationship
generally exists if the person for whom services are performed
has the right to control and direct the individual who performs
the services, not only as to the result to be accomplished by
the work, but also as to the details and means by which that
result is accomplished. That is, an employee is subject to the
will and control of the employer, not only as to what is to be
done, but also as to how it is to be done. It is not necessary
that the employer actually control the manner in which the
services are performed, rather it is sufficient that the
employer have a right to control. Whether the requisite control
exists is determined on the basis of all the relevant facts and
circumstances. The test of whether an employer-employee
relationship exists is relevant in determining whether a worker
is an employee or an independent contractor. However, the same
test applies in determining whether a worker is an employee of
one person or another.\25\
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\24\ Treas. Reg. secs. 31.3121(d)-l(c)(1), 31.3306(i)-1(a), and
31.3401(c)-l.
\25\ Issues relating to the classification of workers as employees
or independent contractors are discussed in Joint Committee on
Taxation, Present Law and Background Relating to Worker Classification
for Federal Tax Purposes (JCX-26-07), May 2007. These issues are also
discussed in Joint Committee on Taxation, Study of the Overall State of
the Federal Tax System and Recommendations for Simplification, Pursuant
to Section 8022(3)(B) of the Internal Revenue Code of 1986 (JCS-3-01),
April 2001, at Vol. III, Part XV.A, at 539-550.
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In some cases, a person other than the common-law employer
maybe liable for employment taxes. For example, if wages are
paid to an employee by a person other than the employer and the
payor, rather than the employer, has control of the payment of
the wages, the payor is responsible for complying with the
applicable employment tax requirements.\26\ There are also
special rules under which if a lender, surety or other person
pays wages directly to an employee or group of employees, the
lender, surety, or other person is responsible for employment
taxes. \27\ There is also a special rule under which a
qualified real estate agent, or direct seller of certain
consumer products, performing services is not treated as an
employee with respect to the person for whom the services are
performed.\28\
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\26\ Sec. 3401(d)(1) (for purposes of income tax withholding, if
the employer does not have control of the payment of wages, the person
having control of the payment of such wages is treated as the
employer); Otte v. United States, 419 U.S. 43 (1974) (the person who
has the control of the payment of wages is treated as the employer for
purposes of withholding the employee's share of FICA from wages); and
In re Armadillo Corporation, 561 F.2d 1382 (10th Cir. 1977), and In re
The Laub Baking Company v United States, 642 F.2d 196 (6th Cir. 1981)
(the person who has control of the payment of wages is the employer for
purposes of the employer's share of FICA and FUTA). The mere fact that
wages are paid by a person other than the employer does not necessarily
mean that the payor has control of the payment of the wages. Rather,
control depends on the facts and circumstances. See, e.g., Consolidated
Flooring Services v. U.S., 38 Fed. Cl. 450 (1997), and Winstead v.
U.S., 109 F. 3d 989 (4th Cir. 1997).
\27\ Sec. 3505
\28\ Sec. 3508
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In addition, certain designated agents are jointly and
severally liable with the employer for FICA tax and income tax
withholding with respect to wages paid to the employer's
employees.\29\ These designated agents prepare and file
employment tax returns using their own names and employer
identification numbers.\30\ In contrast, reporting agents
(often referred to as payroll service providers) are generally
not liable for the employment taxes reported on their clients'
returns. Reporting agents prepare and file employment tax
returns for their clients using the client's name and employer
identification number.
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\29\ Sec. 3504. The designated payroll agent rules do not apply for
FUTA purposes.
\30\ The employer's name, address, and employer identification
number, as well as the agent's, are provided when the agent is
designated by the employer. Form 2678 is used to designate an agent.
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Penalties apply in the case of failures to comply with
information reporting requirements.\31\ In the case of failure
to file a specified information return, a penalty of $50 for
each return (not to exceed $100,000) is imposed.\32\
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\31\ Secs. 6721-6724.
\32\ Sec. 6723.
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Home-care services,
Many elderly and disabled individuals receive in-home care
through state and local government health and welfare
programs.\33\ These programs generally are funded at least in
part with Federal funds. In most cases, the service recipient
(i.e., the elderly or disabled individual) is the common law
employer.
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\33\ See National Taxpayer Advocate 2007 Annual Report to Congress,
December 31, 2007 at 355.
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IRS guidance provides rules for State and local government
agencies as to how they can serve as agents for disabled
individuals and other welfare recipients who employ home-care
service providers to assist them in their homes.\34\ In
general, these rules provide that the elderly or disabled
individual must complete a form designating the State or local
government as their agent for employment tax purposes. Under
IRS guidance, unlike the general rule for designated agents, a
State that furnishes home-care service providers (or a third
party subagent of the State) can act as an agent on behalf of
the service recipient for FUTA purposes.\35\ As previously
discussed, in the case of a State or local government or
independent third party serving as an agent on behalf of the
service recipient, the service recipient remains liable for
payment of the employment taxes and for any associated
penalties for noncompliance.
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\34\ See Notice 2003-70, 2003-2 C.B. 916 (providing a proposed
revenue procedure). See also, Rev. Proc. 76-6, 1970-1 C.B. 420, as
modified by Rev. Proc. 80-4, 1980-1 C.B. 581.
\35\ Notice 2003-70, 2003-2 C.B. 916. This is not the case if the
independent third party is designated as the agent directly by the
employer.
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REASONS FOR CHANGE
Many elderly and disabled individuals receive in-home care
through State and local government health and welfare programs.
These elderly and disabled individuals are the common law
employer of their service provider even though the payment for
these services is handled by a fiscal administrator of the
relevant State or local government agency. The administrator
often pays the employment taxes to the IRS and handles any
required IRS information reporting (for example, Form W-2) as
an agent for the elderly and disabled individual. To allow the
fiscal administrator to handle the employment tax
responsibilities, the service recipients must designate the
administrator as their agent in a cumbersome process that is
confusing for the service recipients. In addition, this agency
designation does not eliminate the liability of the service
recipient, who as the common law employer, is ultimately liable
for unpaid employment taxes. It is difficult for IRS systems to
accurately reconcile information returns with respect to these
taxes. In many cases; the inability to reconcile the
information has resulted in the IRS contacting the service
recipient for payment of the employment taxes even though,
under the government program, the elderly or disabled
individual does not have responsibility, or direct access to
the funds, for paying the wages to the service provider. The
Committee believes that, in these situations, the home care
service recipient should be relieved of any potential liability
for employment taxes, and responsibility for information
reporting.
EXPLANATION OF PROVISION
The provision provides that, in the case of amounts paid
under a home care service program to a home care service
provider by the fiscal administrator of such program, the
fiscal administrator is solely liable for the payment of
employment taxes with respect to amounts paid for services
under the program. In such case, the home care service
recipient is not liable for the payment of employment taxes.
A home care service program is a State or local government
program which is funded in whole or part by Federal funds and
under which domestic services are provided to elderly or
disabled individuals in their home. A home care service program
does not include any program to the extent home care service
recipients make payments to the home care service providers for
such in-home domestic services.
A home care service provider is an individual who provides
domestic services to a home care service recipient under a home
care service program. A home care service recipient is an
individual receiving domestic services under a home care
service program. A fiscal administrator is any person or
governmental entity who pays amounts under a home care service
program to home care service providers for the provision of
domestic services under such program.
Employment tax returns (i.e., Forms W-2, 940 and 941) must
be made under the name and employer identification number of
the fiscal administrator rather than that of the common law
employer, the service recipient. The fiscal administrator is
required, as prescribed by the Secretary, to report to the IRS
the name, address, and social security number of each home care
service recipient for whom amounts are paid by such fiscal
administrator under the home care services program. This is
intended to assist the IRS in preventing collection action
against the elderly or disabled common law employer. In the
case of failure to file the required report, a penalty is
imposed.\36\
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\36\ Section 6723 imposes a penalty of $50 per report (not to
exceed $100,000 per calendar year).
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Under the provision, the Secretary may prescribe
regulations or other guidance as may be necessary to carry out
the purposes of the provision, including rules for timing of
employment tax deposits.
It is intended that the present law rules that apply in the
case of household employees continue to apply under the
provision. Relevant thresholds under these rules are also
determined with respect to each home care recipient. For
example, it is intended that the exception from FICA for
domestic service in a private home if cash remuneration, paid
during the year by the employer to the employee for such
service is less than $1,600 (for 2008) would continue to apply.
Similarly, FUTA would be required only if the employer paid
wages of $1,000 for household service in any calendar quarter
in the calendar year or the preceding calendar year. In
addition, the present law exception from Federal income tax
withholding for household employees would continue to apply.
EFFECTIVE DATE
The provision is effective for amounts paid after December
31, 2008.
E. Referrals to Low-Income Taxpayer Clinics (Sec. 6 of the Bill)
PRESENT LAW
The Code provides that the Secretary is authorized to
provide up to $6 million per year in matching grants to certain
qualified low-income taxpayer clinics.\37\ Eligible clinics are
those that charge no more than a nominal fee to either
represent low-income taxpayers in controversies with the IRS or
provide tax information to individuals for whom English is a
second language. No clinic can receive more than $100,000 per
year.
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\37\ Sec. 7526.
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A qualified low-income taxpayer clinic. includes (1) a
clinical program at an accredited law, business, or accounting
school, in which students represent low-income taxpayers, or
(2) an organization described in section 501(c) which either
represents low-income taxpayers as described above or provides
referrals to qualified representatives. A low-income taxpayer
is an individual whose income does not exceed 250 percent of
the poverty level, as determined in accordance with criteria
established by the Director of the Office of Management and
Budget (``OMB'').
The Department of the Treasury prohibits its officers and
employees from referring taxpayers to qualified low-income
taxpayer clinics for advice and assistance.
REASONS FOR CHANGE
The Committee believes that qualified low-income taxpayer
clinics contribute to compliance with the tax laws by providing
representation to taxpayers who might otherwise be uncertain
about their rights and obligations under the law and lack the
means to secure adequate representation. Accordingly, the
Committee believes that officers and employees of the
Department of the Treasury should be permitted to inform
taxpayers of the existence of these clinics and refer taxpayers
to such clinics for assistance.
EXPLANATION OF PROVISION
The provision allows officers and employees of the
Department of the Treasury to refer taxpayers for advice and
assistance to qualified low-income taxpayer clinics that
receive funding, notwithstanding any other provision of law.
EFFECTIVE DATE
The provision is effective for referrals made after the
date of enactment.
F. Programs for the Benefit of Low-Income Taxpayers (Sec. 7 of the Bill
and Sec. 7526 and New Sec. 7526A of the Code)
PRESENT LAW
The Code provides that the Secretary is authorized to
provide up to $6 million per year in. matching grants to
certain qualified low-income taxpayer clinics.\38\ Eligible
clinics are those that charge no more than -a nominal fee to
either represent low-income taxpayers in controversies with the
IRS or provide tax information to individuals for whom English
is a second language. No clinic can receive more than $100,000
per year.
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\38\ Sec. 7526.
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A qualified low-income taxpayer clinic includes (1) a
clinical program at an accredited law, business, or accounting
school, in which students represent low-income taxpayers, or
(2) an organization described in section 501(c) which either
represents low-income taxpayers as described above or provides
referrals to qualified representatives. A low-income taxpayer
is an individual whose income does not exceed 250 percent of
the poverty level, as determined in accordance with criteria
established by the Director of the Office of Management and
Budget (``OMB'').
REASONS FOR CHANGE
The Committee believes that taxpayer clinics contribute to
compliance with the tax laws by providing representation to
taxpayers who might otherwise be uncertain about their rights
and obligations under the law and lack the means to secure
adequate representation. Accordingly, the Committee believes
that the work of the volunteer income tax assistance program
should be encouraged to increase assistance provided to low-
and moderate-income taxpayers. The Committee also believes that
an increase in grants to qualified low-income taxpayer clinics
is needed to improve the level of assistance provided to
taxpayers unable to obtain representation for Federal tax
disputes.
EXPLANATION OF PROVISION
The provision authorizes the Secretary to make $10 million
in matching grants for volunteer income tax assistance
programs. Volunteer income tax assistance programs are programs
that provide tax return preparation and filing services to low-
and moderate-income (as determined by the Secretary) taxpayers.
Under the provision, volunteer income tax assistance programs
may not charge taxpayers for return preparation services.
Volunteers assisting taxpayers through such programs must meet
training requirements established by the Secretary.
The authorization of $6 million for qualified low-income
taxpayer clinics under present law also is increased to $10
million.
EFFECTIVE DATE
The provision is effective on the date of enactment.
G. Earned Income Credit Outreach (Sec. 8 of the Bill and Sec. 32 of the
Code)
PRESENT LAW
In general
Low and moderate-income taxpayers may be eligible for the
refundable earned income credit (``EIC'').\39\ Generally, the
amount of the EIC is based on the presence and number of
qualifying children in the taxpayer's family, as well as on
adjusted gross income (``AGI'') and earned income.\40\ Other
rules also apply.
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\39\ The EIC is a refundable credit, meaning that if the amount of
the credit exceeds the taxpayer's Federal income tax liability, the
excess is payable to the taxpayer as a direct transfer payment. Under
an advance payment system, eligible taxpayers may elect to receive a
portion of the credit in their paychecks, rather than waiting to claim
a refund on their tax return filed by April 15 of the following year.
\40\ Earned income is defined as (1) wages, salaries, tips, and
other employee compensation, but only if such amounts are includible in
gross income, plus (2) the amount of the taxpayer's net self-employment
earnings.
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Three separate schedules apply in computing the taxpayer's
EIC: (1) one schedule for taxpayers with no qualifying
children; (2) one schedule for taxpayers with one qualifying
child; and (3) one schedule for taxpayers with more than one
qualifying child.\41\
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\41\ In general, a child is a qualifying child of a taxpayer if the
child satisfies each of three tests: (1) the child has the same
principal place of abode as the taxpayer for more than one-half of the
taxable year; (2) the child has a specified relationship to the
taxpayer; and (3) the child has not yet attained a specified age. A
tie-breaking rule applies if more than one taxpayer claims a child as a
qualifying child.
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The EIC generally equals a specified percentage of earned
income up to a maximum dollar amount. The maximum amount
applies over a certain income range and then diminishes to zero
over a specified phaseout range. For taxpayers with earned
income (or AGI, if greater) in excess of the beginning of the
phaseout range, the maximum EIC amount is reduced by the
phaseout rate multiplied by the amount of earned income (or
AGI, if greater) in excess of the beginning of the phaseout
range. For taxpayers with earned income (or AGI, if greater) in
excess of the end of the phaseout range, no credit is allowed.
All income thresholds are adjusted annually for inflation.
Wage withholding
In general, the Code requires employers to withhold income
tax on wages paid to employees, including wages and salaries of
employees or elected officials of Federal, State, and local
government units. Withholding rates vary depending on the
amount of wages paid, the length of the payroll period, and the
number of withholding allowances claimed by the employee. The
Code also requires that employers report wage withholding
information annually to the IRS and their employees (e.g., Form
W-2 and Form W-3).\42\
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\42\ Information returns, such as Form W-2, are returns within the
meaning of section 6103(b)(1).
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EIC outreach and assistance
Pre-tax return filing
The IRS has developed an outreach effort to inform
taxpayers potentially eligible for the EIC and their employers
about the EIC and how to claim the credit. One such public
notice, contained in IRS Notice 797 (Rev. 12-2006), explains
the EIC, its eligibility rules, and how to claim the credit. In
addition, the IRS works with employers, community groups and
other stakeholders to inform eligible taxpayers of the EIC. The
IRS also helps taxpayers below certain income levels compute
their Federal income tax liability, including the amount of
EIC, if any.
Post-tax return filing
The IRS sends out notice letters addressed to taxpayers who
it has identified as potentially eligible for the EIC in the
immediately prior taxable year.
The notice letters are different depending on the presence
of a qualifying child or children in the taxpayer's household.
If the IRS identifies a taxpayer with one or more qualifying
children as potentially eligible for the EIC, the notice letter
informs the taxpayer that IRS records indicate that: (1) the
taxpayer's income falls in the eligible range to receive the
EIC; (2) the taxpayer has one or more dependents who may be an
ETC qualifying child; and (3) the taxpayer did not claim the
EIC for the applicable taxable year on his or her return filed
with the IRS. If the IRS identifies a taxpayer without
qualifying children as potentially eligible for the EIC, the
notice letter informs the taxpayer that IRS records indicate
that: (1) the taxpayer's income falls in the eligible range to
receive the EIC and (2) the taxpayer did not claim the EIC for
the applicable taxable year on his or her return filed with the
IRS.
In all cases, the notice letters ask the taxpayers to
complete an ``EIC Eligibility Check-Sheet'' and, if the check-
sheet indicates eligibility for the EIC, to return it to the
IRS. The EIC Eligibility Check-Sheet requests the taxpayer to
provide all the information necessary to determine EIC
eligibility. The EIC Eligibility Check-Sheet is completed under
penalty of perjury by the taxpayer (and the taxpayer's spouse
in the case of a joint return). The IRS reviews the information
submitted by the taxpayer and either: (1) sends any applicable
refund within eight weeks (net of any other amounts the IRS is
required to collect), or (2) sends an explanation to the
taxpayer stating why the taxpayer does not qualify for the EIC.
The notice letters also provide information to help
eligible taxpayers correctly claim the EIC in future taxable
years.
Under present law, these notice letters are sent by the IRS
only to individuals who have filed a tax return for the
applicable taxable year. The absence of the taxpayer's filed
tax return, notwithstanding the receipt by the IRS of return
information or an information return (e.g., Form W-2 indicating
wage withholding on the taxpayer) from the taxpayer's employer
does not trigger--a notice letter to the taxpayer.
Limitations on credits and refunds
Under section 6511, a claim for credit or refund of
overpayment of tax with respect to which a return must be filed
must be made within the later of: (1) three years from the time
the return was filed or (2) two years from the time the tax was
paid. If no return was filed by the taxpayer, then the
applicable time period ends two years, after the tax was paid.
REASONS FOR CHANGE
The Committee believes that all taxpayers who are eligible
for the EIC should receive it. The IRS estimates that. 20-25
percent of taxpayers eligible for the EIC do not claim the
credit. The Committee believes that the IRS should enhance its
efforts to identify and contact taxpayers who are eligible for
the EIC, particularly in the case of taxpayers who have had
taxes withheld on their wages but who have not filed a tax
return. In some instances, taxpayers who have incomes below tax
filing thresholds and may not realize that they are eligible
for the EIC. The Committee realizes that improving EIC outreach
is an important component in ensuring that those who are
eligible claim the credit.
EXPLANATION OF PROVISION
The provision requires the IRS to provide annually, and to
the extent possible,\43\ notice to all taxpayers who have-been
identified based on return or return information as being
potentially eligible for the EIC in any taxable year for which
a claim for credit or refund is not barred by the limitation
period under section 6511. Such notice must be in writing,
address all. open tax years, and be sent to the last known
address of such taxpayers: (1) who did not file a claim for the
EIC for such taxable year, and (2) who the IRS identified as
potentially eligible for the EIC for such taxable year based on
a return or return information (as defined in sec. 6103(b)).
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\43\ It is anticipated that the type of available return
information and available IRS resources will affect the IRS's ability
to issue the additional notice letters contemplated under this
proposal.
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Upon receipt of this notice letter, the taxpayer who had
filed a return for the applicable taxable years would complete
the applicable EIC Eligibility Check-Sheet for each of the
applicable taxable years. It is anticipated that this Check-
Sheet would ask for all the information relating to the
taxpayer's eligibility for the EIC (e.g., earned income, AGI,
presence and number of qualifying children, and taxpayer
identification numbers). If eligible for the EIC, in one or
more of the applicable taxable years, the taxpayer would return
the EIC Eligibility Check-Sheet to the IRS for any refund
(including wages withheld by the taxpayer's employer). In the
case of an eligible taxpayer who had not filed a return for the
applicable taxable years, the taxpayer would be instructed to
file a tax return claiming the EIC with the IRS for any refund
(including wages withheld by the taxpayer's employer) for each
of the applicable taxable years.
EFFECTIVE DATE
The provision is effective on the date of enactment.
H. Prohibition on IRS Debt Indicators for Predatory Refund Anticipation
Loans (Sec. 9 of the Bill and Sec. 6011 of the Code)
PRESENT LAW
A refund anticipation loan is a loan made by a commercial
lender to a taxpayer based on the refund the taxpayer expects
to receive. The loan is a private contract between the taxpayer
and a commercial lender. The Code does not regulate the making
of refund anticipation loans, but consumer groups, the
Commissioner of the IRS, and the National Taxpayer Advocate all
have raised concerns over the high interest rates and fees
associated with such loans.\44\
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\44\ See e.g., National Taxpayer Advocate, 2005 Annual Report to
Congress, Publication 2104 (Rev. 12-2005), at 162.
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Certain tax practitioners that file returns electronically
and financial institutions may obtain a debt indicator from the
IRS for their customer taxpayers. A debt indicator facilitates
the making of refund anticipation loans because it tells
whether or not a taxpayer has any scheduled offsets against a
claimed refund. Thus, a debt indicator reduces the lender's
risk of making a refund anticipation loan because it informs
the lender whether the taxpayer's refund will be paid or
reduced for certain debts.
REASONS FOR CHANGE
The Committee understands that the majority of refund
anticipation loans are made to low-income families, including
EIC claimants. The Committee also understands that the
providers of refund anticipation loans often charge
exorbitantly high fees and interest rates for such loans, at
times in excess of 100 percent. The Committee is concerned that
these high-cost, short-term loans unfairly siphon millions of
dollars from low-income taxpayers. Moreover, the Committee is
concerned that debt indicators are being used as a means to
enable these predatory refund anticipation loans to taxpayers.
The Committee believes that the Department of the Treasury
should not be facilitating predatory refund anticipation loans
by reducing the lender's risk of making such loans. Thus, the
Committee believes that prohibiting debt indicators with
respect to predatory refund anticipation loans will decrease
the viability of such loans and provide additional protection
to taxpayers.
EXPLANATION OF PROVISION
The provision prohibits the Secretary from providing a debt
indicator to any person with respect to any refund anticipation
loan if the Secretary determines that the business practices of
such person involve refund anticipation loans and related
charges and fees that are predatory. Under the provision, a
refund anticipation loan is any loan of money or any other
thing of value to a taxpayer secured by the taxpayer's
anticipated receipt of a Federal tax refund. For purposes of
the provision, a debt indicator means a notification provided
to a tax practitioner or financial institution pursuant to a
program or procedure that a taxpayer's refund will be reduced
or offset to repay debts for delinquent Federal or State taxes,
strident loans, child support, or other Federal agency debt.
EFFECTIVE DATE
The provision is effective on the date of enactment.
I. Study on Delivery of Tax Refunds (Sec. 10 of the Bill)
PRESENT LAW
A large number of individual taxpayers do not have bank
accounts. These taxpayers are unable to participate fully in
electronic filing, because the IRS cannot electronically
transmit to them their tax refunds.
REASONS FOR CHANGE
The Committee believes that the attractiveness of
electronic filing and faster deposit of direct deposited
refunds is diminished when individuals do not have an account
at a financial institution. These individuals rely on
alternative financial service providers to cash checks, pay
bills, send remittances, and obtain credit. The cost of these
alternative services reduces benefits received through the tax
system, such as the earned income tax credit. The Committee
believes the Secretary should study alternative means of
delivering tax refunds to taxpayers to reduce the cost and
refund processing time for those taxpayers who do not have
access to financial institutions.
EXPLANATION OF THE PROVISION
The provision requires the Secretary to conduct a study, in
consultation with the National Taxpayer Advocate, of the
implementation of a program to deliver tax refunds through
debit cards or other electronic means. The provision requires
the Secretary to submit a report to Congress on the results of
such study no later than one year after the date of enactment.
EFFECTIVE DATE
The provision is effective on the date of enactment.
J. Extension of Time Limit for Return of Property for Wrongful Levy
(Sec. 11 of the Bill and Secs. 6343 and 6532 of the Code)
PRESENT LAW
The IRS is authorized to return property that has been
wrongfully levied.\45\ In general, monetary proceeds from the
sale of levied property, or an amount equal to the amount of
money levied, may be returned within nine months of the date of
the levy.
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\45\ Sec. 6343.
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Generally, any person (other than the person against whom
is assessed the tax out of which such levy arose) who claims an
interest in levied property may bring a civil action for
wrongful levy in a district court of the United States.\46\
Generally, an action for wrongful levy must be brought within
nine months from the date of levy.\47\ However, if a claim for
a return of property is made to the IRS, the nine-month period
is extended for the shorter of a period of 12 months from the
date of filing of such request or six months from the date of
mailing of an IRS notice of disallowance of such request.\48\
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\46\ Sec. 7426(a)(1).
\47\ Sec. 6532.
\48\ Sec. 6532(c)(2).
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REASONS FOR CHANGE
The Committee understands that, in many cases, the time
period for bringing an action may be insufficient for third
parties to discover a wrongful or mistaken levy and seek to
remedy it. Accordingly, the Committee believes it is
appropriate to provide for a longer period of time within which
a person may contest a wrongful IRS levy.
EXPLANATION OF PROVISION
The provision extends from nine months to two years the
period for returning money and the monetary proceeds from the
sale of property that has been wrongfully levied.
The provision also extends from nine months to two years
the period for bringing a civil action for wrongful levy.
EFFECTIVE DATE
The provision is effective with respect to: (1) levies made
after the date of enactment and (2) levies made on or before
the date of enactment provided that the nine-month period has
not expired as of the date of enactment.
K. Individuals Held Harmless on Improper Levy on Individual Retirement
Plan (Sec. 12 of the Bill and Sec. 6343 of the Code)
PRESENT LAW
Distributions from an individual retirement arrangement
(``IRA'') made on account of an IRS levy are includible in the
gross income of the individual under the rules applicable to
the IRA subject to the levy. Thus, in the case of a traditional
IRA, the amount distributed as a result of a levy is includible
in gross income except to the extent such amount represents a
return of nondeductible contributions (i.e., basis). In the
case of a Roth IRA, earnings on a distribution are excludable
from gross income if the distribution is made: (1) after the
five-taxable year period beginning with the first taxable year
for which the individual made a contribution to a Roth IRA and
(2) after attainment of age 59\1/2\ or on account of certain
other circumstances. Amounts withdrawn from an IRA due to a
levy are not subject to the 10 percent early withdrawal tax,
regardless of whether the amount is includible in income.
Present law provides rules under which the IRS returns
amounts subject to an incorrect levy. For example, amounts
withdrawn from an IRA pursuant to a levy are returned to the
individual owning the IRA in the case of a wrongful levy or if
the levy was not in accordance with IRS administrative
procedures. In the case of a wrongful levy, the IRS is required
to pay interest on the amount returned to the individual at the
overpayment rate. The IRS is not required to pay interest if
the levy was not in accordance with IRS administrative
procedures.
Present law does not provide special rules to allow an
individual to recontribute to an IRA amounts withdrawn from an
IRA pursuant to a levy and later returned to the individual by
the IRS (or interest thereon). Thus, if an individual wishes to
contribute such returned amounts to an IRA, the contribution is
subject to the normally applicable rules for IRA contributions.
REASONS FOR CHANGE
IRA assets provide an important source of retirement income
for many Americans. Under present law, if the IRS improperly
levies on an IRA, the individual owning the IRA may not be made
whole, even if the IRS returns the amount levied, with
interest, because the individual may lose the opportunity to
have those funds accumulate on a tax-favored basis until
retirement. The Committee believes that improper levies should
not reduce retirement income security for IRA owners. Thus, the
Committee bill provides that IRA funds that are withdrawn
pursuant to an improper IRS levy and returned by the IRS may be
recontributed to the IRA.
EXPLANATION OF PROVISION
Under the provision, an individual is able to recontribute
to an IRA amounts withdrawn pursuant to a levy and returned by
the IRS (and any interest thereon) within 60 days of receipt by
the individual, without regard to the normally applicable
limits on IRA contributions and rollovers. The provision
applies to levied amounts returned to the individual because
the levy (1) was wrongful or (2) is determined to be premature
or otherwise not in accordance with administrative procedures.
The recontribution may be made to the same IRA or to any other
individuated retirement plan (other than an endowment contract)
to which a rollover from the IRA levied upon is permitted. That
is, the recontribution may be made to the same IRA or to an IRA
of the same type.
Under the provision, the IRS is required to pay interest on
amounts returned to the individual at the overpayment rate in
the case of a levy that is determined to be premature or
otherwise not in accordance with administrative procedures (as
well as in the case of a wrongful levy under present law).
Interest paid by the IRS on the amount returned to the
individual is excludable from gross income if the interest is
contributed to an IRA under the provision. An amount
contributed to an IRA under the provision will only be treated
as interest paid by the IRS to the extent the total amount
contributed under the provision exceeds the amount of the levy.
Any tax attributable to an amount distributed from an IRA
by reason of a levy is abated if the amount is recontributed to
an IRA pursuant to the provision.
EFFECTIVE DATE
The provision is effective for levied amounts (and interest
thereon) returned to individuals after the date of enactment.
L. Taxpayer Notification of Suspected Identity Theft (Sec. 13 of the
Bill and New Sec. 7529 of the Code)
PRESENT LAW
Section 6103 provides that returns and return information
are confidential and may not be disclosed by the Internal
Revenue Service (``IRS''), other Federal employees, State
employees, and certain others having access to the information
except as provided in the Code.\49\ The definition of ``return
information'' is very broad and includes any information
gathered by the IRS with respect to a person's liability or
possible liability under the Code for any tax, penalty,
interest, fine, forfeiture, or other imposition or offense.\50\
Thus, information gathered by the IRS in connection with an
investigation of a person for an offense under the Code, such
as fraud, is return information of the person being
investigated and is subject to the confidentiality restrictions
of section 6103.
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\49\ Sec. 6103(a).
\50\ Sec. 6103(b)(2). Return information is
a taxpayer's identity, the nature, source, or amount of
his income, payments, receipts, deductions, exemptions, credits,
assets, liabilities, net worth, tax liability, tax withheld,
deficiencies, overassessments, or tax payments, whether the taxpayer's
return was, is being, or will be examined or subject to other
investigation or processing, or any other data, received by, recorded
by, prepared by, furnished to, or collected by the Secretary with
respect to a return or with respect to the determination of the
existence, or possible existence, of liability (or the amount thereof)
of any person under this title for any tax, penalty, interest, fine,
forfeiture, or other imposition, or offense,
any part of any written determination or any background
file document relating to such written determination (as such terms are
defined in section 6110(b)) which is not open to public inspection
under section 6110,
any advance pricing agreement entered into by a taxpayer
and the Secretary and any background information related to such
agreement or any application for an advance pricing agreement, and
any closing agreement under section 7121, and any similar
agreement, and any background information related to such an agreement
or request for such an agreement.
Return information does not include data in a form which cannot be
associated with, or otherwise identify, directly or indirectly, a
particular taxpayer.
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In July 2007, the IRS established the Privacy, Information
Protection, and Data Security Office. Within that office is the
Identity Theft and Incident Management office, which is
responsible for implementing the IRS identity theft strategy
and coordinating efforts within the IRS to provide assistance
and consistent treatment to taxpayers who are victims of
identity theft.
The IRS also recently implemented a pilot program to notify
IRS-identified tax fraud victims of identity theft.
REASONS FOR CHANGE
Identity theft is a growing concern for the Committee.
Identity thieves can use a taxpayer's identity, or the identity
of their dependents, including their social security numbers,
to file fraudulent tax returns and obtain fraudulent refunds.
The Committee believes it is important for the IRS to promptly
notify a taxpayer of potential identity theft so that the
taxpayer can take measures to prevent the misuse of his
identity.
EXPLANATION OF PROVISION
The provision provides that if, in the course of an
investigation under the internal revenue laws, the Secretary
determines that there was, or may have been, an unauthorized
use of a taxpayer's identity or that of a dependent of the
taxpayer, the Secretary shall, to the extent permitted by law,
(1) as soon as practicable and without jeopardizing such
investigation, notify the taxpayer of such determination, and
(2) if any person is criminally charged by indictment or
information with respect to such unauthorized use, notify such
taxpayer as soon as practicable of such charge. Under the
provision, the IRS is not required to make such notification if
disclosure would be barred by any statute (other than Title 26)
or would be, for example, in violation of grand jury secrecy
rules.\51\ Further, notification is not required if the IRS is
unable to obtain an address or other contact information for
the taxpayer. In such case notification would not be
practicable because the IRS would not have the necessary
information to notify that person.
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\51\ Persons bound by the rule of grand jury secrecy in Fed. R.
Crim. P. 6(e)(2) are subject to prosecution for criminal contempt under
18 U.S.C. sec. 401 for the unauthorized disclosure of grand jury
information. Thus, under the provision, a notification that was in
violation of the grand jury secrecy rules would not be ``permitted by
law'' within the meaning of the provision.
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EFFECTIVE DATE
The provision applies to determinations made after the date
of enactment.
M. Repeal of Private Tax Collection Contracts (Sec. 14 of the Bill and
Sec. 6306 of the Code)
PRESENT LAW
Under present law, the IRS may use private debt collection
companies to locate and contact taxpayers owing outstanding tax
liabilities of any type and to arrange payment of those taxes
by the taxpayers.
REASONS FOR CHANGE
Over 130 years ago, this Committee stated that ``any system
of farming the collection of any portion of the revenue of the
Government is fundamentally wrong * * *. No necessity for such
laws exist * * * the Secretary of the Treasury and the head of
the Internal Revenue Bureau are empowered by law to make all
collections of taxes * * *. The Internal Revenue Bureau is
possessed of full knowledge of the laws relating to the
collection of the revenue * * * and has all the machinery
necessary for their full and complete enforcement.'' \52\ The
Committee believes these words remain true today.
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\52\ H.R. Rep. No. 43-559, 1st Sess. (1874).
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The Committee believes that the collection of Federal
income taxes is an inherently governmental function that should
be restricted to IRS employees. The Committee believes that the
use of private contractors to collect Federal tax debt violates
the special and confidential relationship between taxpayers and
the Federal government. The Committee believes that the use of
private contractors jeopardizes the privacy of taxpayers and
undermines long-term taxpayer compliance.
The IRS Commissioner has stated on numerous times before
the Committee that IRS employees can collect Federal taxes more
efficiently than private debt collection companies. IRS
employees have access to a taxpayer's complete file and
history, including the most recent information relating to tax
filings and compliance data. Access to the taxpayer's complete
file allows IRS employees to collect outstanding tax debt more
efficiently and in a manner that ensures long-term compliance
with the tax laws. The Committee believes that only IRS
employees should be allowed to perform tax collection
activities.
EXPLANATION OF PROVISION
The provision repeals the authority for the IRS to enter
into, renew, or extend any private debt collection contract.
The provision allows the IRS's existing contracts with private
debt collection companies to continue through the end of their
term.
EFFECTIVE DATE
The provision generally is effective on the date of
enactment, except for any contract which was entered into
before March 1, 2008, and is not renewed or extended on or
after such date. The provision also provides that any private
debt collection contract which is entered into on or after
March 1, 2008, and any extension or renewal of any private debt
collection contract on or after such date, shall be void.
N. Clarification of IRS Unclaimed Refund Authority (Sec. 15 of the Bill
and Sec. 6103 of the Code)
PRESENT LAW
When the IRS is unable to find a taxpayer due a refund,
present law provides that the IRS may use ``the press or other
media'' to notify the taxpayer of the refund. Section 6103(m)
allows the IRS to give the press taxpayer identity information
for this purpose. Taxpayer identity includes, among other
items, name and mailing address.\53\
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\53\ Sec. 6103(b)(6).
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The IRS believes that the current statutory framework of
``press and other media'' does not permit disclosures via the
Internet on the IRS website (www.irs.gov). The legislative
history of the present-law provision does not address the
meaning of ``press and other media.'' At the time enactment of
section 6103(m) in 1976, the press (newspapers and periodicals)
and other traditional media were the only means available for
the IRS to distribute undelivered refund information to the
public. Thus, the IRS interprets the term ``other media'' to
exclude the Internet.
REASONS FOR CHANGE
In November 2007, the IRS announced that it is searching
for 115,478 taxpayers whose income tax refund checks could not
be delivered.\54\ These checks are worth a total of
approximately $110 million. It is the understanding of the
Committee that the current method of notifications, by
newspaper, is ineffective. The Committee believes that the IRS
should be able to use any method of mass communication,
including the Internet, to reach taxpayers who are due refunds.
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\54\ Internal Revenue Service, IRS Has $110 Million in Refund
Checks Looking for a Home (IR-2007-189, November 14, 2007).
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EXPLANATION OF PROVISION
The provision allows the IRS to use any means of ``mass
communication,'' including the Internet, to notify the taxpayer
of an undelivered refund.
EFFECTIVE DATE
The provision is effective on the date of enactment.
O. Prohibition on Misuse of Department of the Treasury Names and
Symbols (Sec. 16 of the Bill and Sec. 333 of Title 31)
PRESENT LAW
Section 333 of Title 31 of the United States Code prohibits
the use, in connection with advertisements, solicitations, and
other business activities, of the words, abbreviations, titles,
letters, symbols, or emblems associated with the Department of
the Treasury (and services, bureaus, offices, or subdivisions
of the Department, including the IRS) in a manner which could
reasonably be interpreted as conveying a connection with or
approval by the Department of the Treasury (or one of its
bureaus, offices, or subdivisions) in the absence of such
connection or approval
The provision provides for a civil penalty of not more than
$5,000 per violation (or not more than $25,000 in the case of a
broadcast or telecast). In addition, the provision provides a
criminal penalty of not more than $10,000 (or not more than
$50,000 in the case of a broadcast or telecast) or imprisonment
of not more than one year, or both, in any case in which the
prohibition is knowingly violated. Any determination of whether
there is a violation is made without regard to the use of a
disclaimer of affiliation with the Federal Government.
The IRS has issued warnings to taxpayers about Internet
sites that resemble the official IRS site:
Taxpayers may be confused by the proliferation of
Internet sites that contain some form of the Internal
Revenue Service name or IRS acronym with a .com, .net,
.org or other designation in the address instead of
gov. Since many of these sites also bear a striking
resemblance to the real IRS site, taxpayers may be
misled into thinking that the site they have accessed
is indeed the official IRS government site. These sites
are not the official IRS Web site and have no
connection to the official IRS site or to the IRS.\55\
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\55\ Internal Revenue Service, IRS Urges Caution about Internet
Sites that Resemble the Official IRS Site (IR-2007-58, March 13, 2007).
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The IRS also has issued a number of warnings regarding
ongoing Internet scams.\56\ The e-mails claim to be from the
IRS and direct the consumer to a link (often resembling the IRS
website) that requests personal and financial information. The
practice is called ``phishing'' for information. Once the
information is obtained, it could be used in identity theft and
stealing a taxpayer's financial assets. Taxpayers who receive
an unsolicited e-mail communication claiming to be from-the IRS
can forward the message to the IRS. The IRS reports it has
received almost 33,000 forwarded e-mail scams.\57\
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\56\ Internal Revenue Service, Identity Theft E-mail Scams a
Growing Problem (FS-2008-9, January 2008).
\57\ Id.
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REASONS FOR CHANGE
The Committee is aware of Internet sites that misuse the
Department of Treasury and Internal Revenue Service names. Use
of an Internet domain name in this manner is misleading and
confusing. Taxpayers may believe that they will access, or may
have accessed, the official IRS site. In addition, the
Committee is aware of the use of e-mail, purporting to be from
the IRS, and websites resembling the IRS website to obtain
personal or financial information from taxpayers. The Committee
believes such practices should be subject to significant
penalties to deter such conduct and that the statute should be
clarified accordingly.
EXPLANATION OF PROVISION
The provision clarifies that ``phishing,'' misleading
websites, and other misleading mass communications by
electronic means using the name or symbols of the Department of
the Treasury (or its components), are subject to the civil
penalty of $25,000 per violation and criminal penalty of
$50,000 per violation. The provision reaffirms that the use of
the words, abbreviations, titles, letters, symbols, or emblems
associated with the Department of the Treasury (and services,
bureaus, offices or subdivisions of the Department, including
the IRS) in an Internet domain name is misleading and covered
by section 333 of Title 31 of the United States Code.
EFFECTIVE DATE
The provision is effective for violations occurring after
the date of enactment.
P. Health Savings Account Substantiation Requirement (Sec. 17 of the
Bill and Sec. 223(f) of the Code)
PRESENT LAW
Health savings accounts
Present law section 223 provides that individuals with a
high deductible health plan (and no other health plan other
than a plan that provides certain permitted coverage).\58\ may
establish a health savings account (``HSA''). An HSA is a tax-
exempt trust or custodial account. Subject to certain
limitations, contributions made to an HSA by an individual are
deductible above-the-line for income tax purposes and
contributions made by an employer (including contributions made
through a cafeteria plan through salary reduction) are
excludable from income and wages. Earnings on amounts in an HSA
accumulate on a tax-free basis.
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\58\ An individual with other coverage in addition to a high
deductible health plan is still eligible for an HSA if such other
coverage is certain permitted insurance or permitted coverage.
Permitted insurance is: (1) insurance if substantially all of the
coverage provided under such insurance relates to (a) liabilities
incurred under worker's compensation law, (b) tort liabilities, (c)
liabilities relating to ownership or use of property (e.g., auto
insurance), or (d) such other similar liabilities as the Secretary may
prescribe by regulations; (2) insurance for a specified disease or
illness; and (3) insurance that provides a fixed payment for
hospitalization. Permitted coverage is coverage (whether provided
through insurance or otherwise) for accidents, disability, dental care,
vision care, or long-term care. Effective after December 20, 2006, with
respect to coverage for years beginning after December 31, 2006,
certain coverage under an FSA is disregarded in determining eligibility
for an HSA.
---------------------------------------------------------------------------
Distributions from an HSA that are for qualified medical
expenses are excludable from gross income. Distributions from
an HSA that are not used for qualified medical expenses are
includible in gross income and are subject to an additional tax
of 10-percent. However, the additional 10-percent tax does not
apply if the distribution is made after death, disability, or
the individual attains the age of Medicare eligibility (i.e.,
age 65). Under present law, the individual maintaining the HSA
is responsible for determining if the distribution was made for
a qualified medical expense and whether the amount should be
included in income and subject to the 10-percent additional
tax.
HSAs provide the opportunity to pay for current out-of-
pocket medical expenses on a tax-favored basis, as well as the
ability to save for future medical and nonmedical expenses on a
tax-favored basis. To the extent that amounts in an HSA are not
used for qualified expenses, an HSA provides tax benefits
similar to an individual retirement arrangement (``IRA'').\59\
---------------------------------------------------------------------------
\59\ Other tax-favored vehicles may also be used to save for future
medical expenses, but do not provide the same tax benefits. For
example, funds in an IRA may be used to pay medical expenses, but
distributions for medical expenses are includible in gross income to
the same extent as other IRA distributions.
---------------------------------------------------------------------------
Qualified medical expenses generally are defined as under
section 213(d) and include expenses for diagnosis, cure,
mitigation, treatment, or prevention of disease, including
prescription drugs; transportation primarily for and essential
to such care, and qualified long-term care expenses. Qualified
medical expenses do not include expenses for insurance other
than for (1) long-term care insurance, (2) premiums for health
coverage during any period of continuation coverage required by
Federal law, (3) premiums for health care coverage while an
individual is receiving unemployment compensation under Federal
or State law, and (4) premiums for individuals who have
attained the age of Medicare eligibility, other than premiums
for Medigap policies.
A high deductible health plan is a health plan that has a
deductible that is at least $1,100 for self only coverage or
$2,200 for family coverage (for 2008) and that has an out-of-
pocket expense limit that is no more than $5,600 in the case of
self-only coverage and $11,200 in the case of family coverage
(for 2008).\60\
---------------------------------------------------------------------------
\60\ These amounts are indexed for inflation.
---------------------------------------------------------------------------
For 2008 the maximum aggregate annual contribution that can
be made to an HSA is $2,900 in the case of self-only coverage
and $5,800 in the case of family coverage.\61\ The annual
contribution limits are increased for individuals who have
attained age 55 by the end of the taxable year (referred to as
``catch up contributions''). In the case of policyholders and
covered spouses who are age 55 or older, the HSA annual
contribution limit is greater than the otherwise applicable
limit by $900 in 2008, and $1,000 in 2009 and thereafter.
Contributions, including catch-up contributions, cannot be made
once an individual is enrolled in Medicare.
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\61\ These amounts are the same as the maximum deductible amounts
permitted under a high deductible plan for purposes of Archer medical
savings accounts (``MSAs'') and are indexed for inflation. In the case
of individuals who are married to each other, if either spouse has
family coverage, both spouses are treated as only having the family
coverage with the lowest deductible and the contribution limit is
divided equally between them unless they agree on a different division.
Limitations based on the amount of the deductible under the high
deductible plan applied to years beginning before January 1, 2007.
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Health flexible spending arrangements
Health flexible spending arrangements (``FSAs'') are
commonly used by employers to reimburse medical expenses of
their employees (and their spouses and dependents). Health FSAs
typically are funded on a salary reduction basis, meaning that
employees are given the option to reduce current compensation
and instead have the compensation used to reimburse the
employee for medical expenses. If the health FSA meets certain
requirements, the compensation that is forgone is not
includible in gross income or wages for employment tax purposes
and reimbursements for medical care from the health FSA are
excludable from gross income and wages. Health FSAs are subject
to the requirements relating to cafeteria plans generally,
including a requirement that a cafeteria plan generally may not
provide deferred compensation.\62\ This requirement is often
referred to as, the ``use-it-or-lose-it-rule.'' \63\ Health
FSAs are subject to certain other requirements, including rules
that require that the FSA have certain characteristics similar
to insurance. In addition, health FSAs are also subject to
certain requirements relating to substantiation of
expenses.\64\
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\62\ Sec. 125(4)(2).
\63\ This requirement has been interpreted to mean that amounts
remaining in a health FSA as of the end of a plan year must be
forfeited by the employee. However, Treasury guidance allows a grace
period not to exceed two and one-half months immediately following the
end of the plan year during which unused amounts may be used. Notice
2005-42, 2005-23 I.RB.1204. Prop. Treas. Reg. sec. 1.125-1.
\64\ See Prop. Treas. Reg. sec. 1.125-6. See also, Notice 2002-45,
2002-2 C.B. 93, Rev. Rul. 2003-43, 2003-1 C.B. 935; Notice 2006-69,
2006.2 C.B. 107; and Notice 2007-2, 2007-1 C.B. 254.
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REASONS FOR CHANGE
The Committee believes that it is appropriate to require
trustee reporting of health savings account distributions that
are used for nonqualified purposes. Under present law, the
determination of whether an expense is a nonqualified medical
expense, reported on an income tax return, and subject to tax
and penalty, is made by the individual taxpayer. The Committee
is aware of the effectiveness of third party reporting in
improving compliance and addressing the $345 billion tax gap. A
requirement for individuals to substantiate medical expenses to
the HSA trustee (or its designee) would ensure that, in the
case of a withdrawal for a nonqualitled medical expense, the
appropriate amount is included in gross income and the
additional tax is imposed. A delayed effective date is provided
to allow the development of systems and procedures to properly
substantiate expenses efficiently. The Committee does not
intend for employers to be subject to any additional burdens or
obligations in respect of HSAs of employees unless such
employers are trustees of these accounts. The Committee intends
for the favorable substantiation rules applicable to FSAs (such
as ``real-time substantiation'') to apply to reduce the
substantiation requirements on individuals. The Committee does
not intend that substantiation must be made in advance of
distributions from HSAs.
EXPLANATION OF PROVISION
The provision provides that in the case of a health savings
account distribution, in order to be a qualified medical
expense, the amount must be substantiated in a manner similar
to that required for health flexible spending arrangements. It
is intended that substantiation is required by the individual
to the trustee (or to a party--designated by the trustee). As
under present law, distributions from a HSA would be allowed
for any purpose. Substantiated expenses would be excludable
from income. Expenses not substantiated would be includible in
income and subject to the 10 percent additional tax. Under the
provision, not later than January 15 of each calendar year, the
HSA trustee is required to report to the account beneficiary
and to the Secretary, the name, address and identifying number
of the account beneficiary and the amount paid or distributed
out of the HSA for the preceding year not substantiated.
EFFECTIVE DATE
The provision is effective with respect to amounts paid or
distributions made out of a health savings account after
December 31, 2010.
Q. Certain Domestically Controlled Foreign Persons Performing Services
Under Contract With United States Government Treated as American
Employers (Sec. 18 of the Bill and Sec. 3121 of the Code)
PRESENT LAW
In general
Under the Federal Insurance Contributions Act (``FICA''),
separate taxes are imposed on every employer and employee with
respect to wages paid to such employer's employees.\65\ These
two taxes are commonly referred to as the employer's and the
employee's share of FICA. The employee's share of FICA is
collected by means of payroll withholding by the employee's
employer.
---------------------------------------------------------------------------
\65\ Secs. 3101-3128 (FICA). Sections 3501-3510 provide additional
rules.
---------------------------------------------------------------------------
For both the employer and the employee's share of FICA, the
tax consists of two parts: (1) old age, survivor, and
disability insurance (``OASDI''), which correlates to the
Social Security program that provides monthly benefits after
retirement, disability, or death; and (2) Medicare hospital
insurance (``HI''). The OASDI tax rate is 6.2 percent on both
the employee and employer (for a total rate of 12.4 percent).
The OASDI tax rate applies to wages up to the OASDI wage base
($102,000 for 2008). The HI tax rate is 1.45 percent on both
the employee and the employer (for a total rate of 2.9
percent). Unlike the OASDI tax, the HI tax is not limited to a
specific amount of wages, but applies to all wages.
For purposes of the employer's and employee's share of
FICA, wages generally means all remuneration for employment
including the cash value of all remuneration paid in a medium
other than cash. However, the general definition of wages is
subject to a number of special rules and exceptions.\66\
---------------------------------------------------------------------------
\66\ Sec. 3121(a).
---------------------------------------------------------------------------
Employment for FICA purposes generally means any service of
whatever nature performed by an employee for the employer
(irrespective of the citizenship or residence of either) within
the United States. In the case of service outside the United
States, employment also includes service performed by a United
States citizen or resident as an employee for an American
employer. As in the case of the definition of wages, the
definition of employment is also subject to a number of
exceptions and special rules.\67\ An American employer is
defined as an employer which is: (1) the United States or any
instrumentality thereof; (2) an individual who is a resident of
the United States; (3) a partnership, if at least two-thirds of
the partners are United States residents; (4) a trust, if all
of the trustees are United States residents; or (5) a
corporation organized under the laws of the United States or
any of the States.\68\
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\67\ Sec. 3121(b). For example, employment for FICA purposes
includes certain service with respect to American vessels or aircrafts
and also includes service that is designated as employment under an
agreement entered into under section 233 of the Social Security Act.
\68\ Sec. 3121(h).
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Section 3121(l) agreements
An American employer may enter into a voluntary agreement
with the Secretary of the `` Treasury to extend coverage of the
insurance system of Title II of the Social Security Act to
service performed outside the United States in the case of
certain employees. Specifically, such an agreement may be
entered into with respect to employees of a foreign affiliate
of the American employer who are United States citizens or
residents.\69\ Such an agreement is commonly referred to as a
``section 3121(l) agreement'', and is entered into by
completing Internal Revenue Service Form 2032. A foreign
affiliate for purposes of the section 3121(l) agreement is any
foreign entity in which the American employer has at least a
10-percent interest.\70\
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\69\ Sec. 3121(l).
\70\ Sec. 3121(l)(6).
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If a section 3121(l) agreement is entered into, the
American employer agrees to pay the Secretary of the Treasury
amounts equivalent to the employer and employee's share of FICA
(including amounts equivalent to interest, additional taxes,
and penalties which would be applicable) with respect to the
remuneration which would be wages if the services covered by
the agreement constituted employment for purposes of FICA. In
addition, the American employer agrees to comply with such
regulations relating to payments and reports as the Secretary
of the Treasury may prescribe.\71\ A section 3121(l) agreement
may not be terminated with respect to a foreign affiliate after
June 15, 1989.\72\
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\71\ Sec. 3121(l)(1).
\72\ Sec. 3121(l)(3).
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In the case of a domestic corporation, a deduction is
allowed for amounts paid or incurred pursuant to a section
3121(l) agreement with respect to services performed by United
States citizens employed by foreign subsidiary
corporations.\73\ Any reimbursement of any amount previously
allowed as a deduction is included in gross income in the year
received.
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\73\ Sec. 176.
---------------------------------------------------------------------------
Totalization agreements
Under section 233 of the Social Security Act, the President
of the United States is authorized to enter into agreements
establishing totalization arrangements between the social
security system of the United States and the social security
system of a foreign country (referred to as a ``totalization
agreement'').\74\ The purposes of a totalization agreement are
(1) to establish entitlement to and the amount of old-age,
survivors, disability, or derivative benefits based on a
combination of an individual's periods of coverage under the
United States social security system and the social security
system of a foreign country, and (2) to prevent imposition of
employment taxes by two countries on the same wages.
---------------------------------------------------------------------------
\74\ 42 U.S.C. sec. 433.
---------------------------------------------------------------------------
For purposes of FICA, during any period in which a
totalization agreement is in effect, wages paid to an
individual are exempt from the employer's and employee's share
of FICA to the extent such wages are subject under the
agreement exclusively to the laws applicable to the foreign
country's social security system.\75\
---------------------------------------------------------------------------
\75\ Secs. 3101(c) and 3111(c).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee is aware that certain U.S. companies that
contract with the United States government for the performance
of services abroad are using controlled foreign entities as the
employers of U.S. citizens and residents performing services
under the contracts. This structure is undertaken, in part, to
avoid liability for the employer and employee's share of FICA
and other employment taxes. The Committee believes that these
structures are abusive. The Committee believes that services
performed under a contract with the U.S. government should be
counted toward eligibility for U.S. Social Security benefits
regardless of whether the services are performed for a U.S.
company or for a foreign entity controlled by that company.
EXPLANATION OF PROVISION
Under the provision, a foreign person is treated as an
American employer with respect to certain employees for
purposes of determining whether their employment is subject to
the employer's and employee's share of FICA. Specifically, a
foreign person is treated as an American employer with respect
to an employee of the foreign person who is performing services
in connection with a contract between the United States
government (or any instrumentality thereof) and any member of
any domestically controlled group of entities which includes
such foreign person. Thus, under the provision, service
performed as an employee for such an employer outside of the
United States by a United States citizen or resident in
connection with such a contract is employment that is subject
to FICA. A domestically controlled group of entities is a
controlled group of entities the common parent of which is a
domestic corporation. For this purpose, a controlled group of
entities is as defined in section 1563(a)(l) except that the
ownership threshold is 50 percent rather than 80 percent and
certain other changes are made, including that certain
partnerships may be considered members of a controlled group.
The sections 3101(c) and 3111(c) exceptions for wages not
subject to FICA as a result of a totalization agreement apply
under the provision. Also, this provision does not apply to any
services covered by an agreement under section 3121(l).
The provision provides that the common parent of the
domestically controlled group of entities is jointly and
severally liable for the FICA taxes for which the foreign
person is liable as a result of the provision. In addition; the
common parent is liable for any penalty imposed on the foreign
person with respect to any failure to pay the FICA taxes or any
failure to file any return or statement with respect to such
tax or wages subject to such tax. No deduction is allowed for
any liability imposed on the common parent as a result of these
joint and several liability rules.
EFFECTIVE DATE
The provision is effective for services performed after the
date of enactment of the provision.
R. Modifications to Corporate Estimated Tax Payments (Sec. 19 of the
Bill)
PRESENT LAW
In general
In general, corporations are required to make-quarterly
estimated tax payments of their income tax liability. For a
corporation whose taxable year is a calendar year, these
estimated tax payments must be made by April 15, June 15,
September 15, and December 15.
Tax Increase Prevention and Reconciliation Act of 2005 (``TIPRA'')
TIPRA provided the following special rules:
In case of a corporation with assets of at least $1
billion, the payments due in July, August, and September, 2012,
shall be increased to 106.25 percent of the payment otherwise
due and the next required payment shall be reduced accordingly.
In case of a corporation with assets of at least $1
billion, the payments due in July, August, and September, 2013,
shall be increased to 100.75 percent of the payment otherwise
due and the next required payment shall be reduced accordingly.
Subsequent legislation
Several public laws have been enacted since TIPRA which
further increase the percentage of payments due under each of
the two special rules enacted by TIPRA described above.
REASONS FOR CHANGE
The Committee believes it is appropriate to adjust the
corporate estimated tax payments.
EXPLANATION OF PROVISION
Under the provision, in the case of a corporation with
assets of at least $1 billion, the payments due in July,
August, and September, 2013, the otherwise applicable payment
is increased by 0.25 percent of the payment otherwise due and
the next required payment shall be reduced accordingly.
EFFECTIVE DATE
The provision is effective on the date of enactment.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statements are made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 5719, the ``Taxpayer Assistance and
Simplification Act of 2008''.
MOTION TO REPORT RECOMMENDATIONS
The Chairman's Amendment in the Nature of a Substitute, as
amended, was ordered favorably reported by a rollcall vote of
23 yeas and 17 nays (with a quorum being present). The vote was
as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel....................... X Mr. McCrery........ X
Mr. Stark........................ X Mr. Herger......... X
Mr. Levin........................ X Mr. Camp........... X
Mr. McDermott.................... X Mr. Ramstad........ X
Mr. Lewis (GA)................... X Mr. Johnson........ X
Mr. Neal......................... X Mr. English........ X
Mr. McNulty...................... X Mr. Weller......... X
Mr. Tanner....................... X Mr. Hulshof........ X
Mr. Becerra...................... X Mr. Lewis (KY)..... X
Mr. Doggett...................... X Mr. Brady.......... X
Mr. Pomeroy...................... X Mr. Reynolds....... X
Ms. Tubbs Jones.................. X Mr. Ryan........... X
Mr. Thompson..................... X Mr. Cantor......... X
Mr. Larson....................... Mr. Linder......... X
Mr. Emanuel...................... X Mr. Nunes.......... X
Mr. Blumenauer................... X Mr. Tiberi......... X
Mr. Kind......................... X Mr. Porter......... X
Mr. Pascrell..................... X
Ms. Berkley...................... X
Mr. Crowley...................... X
Mr. Van Hollen................... X
Mr. Meek......................... X
Ms. Schwartz..................... X
Mr. Davis........................ X
----------------------------------------------------------------------------------------------------------------
VOTES ON AMENDMENTS
A roll-call vote was conducted on the following amendments
to the Chairman's Amendment in the Nature of a Substitute.
An amendment by Mr. Herger which would replace Section 4 of
the Taxpayer Assistance and Simplification Act of 2008, dealing
with the application of the 3 percent withholding requirement
on payments to government contractors, was defeated by a vote
of 17 yeas and 24 nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel...................... X Mr. McCrery....... X
Mr. Stark....................... X Mr. Herger........ X
Mr. Levin....................... X Mr. Camp.......... X
Mr. McDermott................... X Mr. Ramstad....... X
Mr. Lewis (GA).................. X Mr. Johnson....... X
Mr. Neal........................ X Mr. English....... X
Mr. McNulty..................... X Mr. Weller........ X
Mr. Tanner...................... X Mr. Hulshof....... X
Mr. Becerra..................... X Mr. Lewis (KY).... X
Mr. Doggett..................... X Mr. Brady......... X
Mr. Pomeroy..................... X Mr. Reynolds...... X
Ms. Tubbs Jones................. X Mr. Ryan.......... X
Mr. Thompson.................... X Mr. Cantor........ X
Mr. Larson...................... Mr. Linder........ X
Mr. Emanuel..................... X Mr. Nunes......... X
Mr. Blumenauer.................. X Mr. Tiberi........ X
Mr. Kind........................ X Mr. Porter........ X
Mr. Pascrell.................... X
Ms. Berkley..................... X
Mr. Crowley..................... X
Mr. Van Hollen.................. X
Mr. Meek........................ X
Ms. Schwartz.................... X
Mr. Davis....................... X
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Brady and Mr. Reynolds which would
strike Section 14 of the Taxpayer Assistance and Simplification
Act of 2008 (H.R. 5719) to retain the statutory authority that
allows the IRS to enter into qualified collection contracts
with private collection agencies (PCS). These PCA(s) would
locate and contact taxpayers with outstanding tax liabilities,
as well as arrange for payment of those outstanding taxes to
the IRS by the taxpayer. The amendment was defeated by a vote
of 18 yeas and 22 nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel...................... X Mr. McCrery....... X
Mr. Stark....................... X Mr. Herger........ X
Mr. Levin....................... X Mr. Camp.......... X
Mr. McDermott................... X Mr. Ramstad....... X
Mr. Lewis (GA).................. X Mr. Johnson....... X
Mr. Neal........................ X Mr. English....... X
Mr. McNulty..................... X Mr. Weller........ X
Mr. Tanner...................... X Mr. Hulshof....... X
Mr. Becerra..................... X Mr. Lewis (KY).... X
Mr. Doggett..................... X Mr. Brady......... X
Mr. Pomeroy..................... X Mr. Reynolds...... X
Ms. Tubbs Jones................. X Mr. Ryan.......... X
Mr. Thompson.................... X Mr. Cantor........ X
Mr. Larson...................... Mr. Linder........ X
Mr. Emanuel..................... X Mr. Nunes......... X
Mr. Blumenauer.................. X Mr. Tiberi........ X
Mr. Kind........................ X Mr. Porter........ X
Mr. Pascrell.................... X
Ms. Berkley..................... X
Mr. Crowley..................... X
Mr. Van Hollen.................. X
Mr. Meek........................ X
Ms. Schwartz.................... X
Mr. Davis....................... X
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Ryan would strike Section 17 of the
Manager's Amendment, requiring Health Savings Account holders
to report on the distributions from these accounts was defeated
by a roll call vote of 16 yeas and 24 nays. The vote was as
follows:
----------------------------------------------------------------------------------------------------------------
Representatives Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel...................... X Mr. McCrery........ X
Mr. Stark....................... X Mr. Herger........ X
Mr. Levin....................... X Mr. Camp.......... X
Mr. McDermott................... X Mr. Ramstad....... X
Mr. Lewis (GA).................. X Mr. Johnson....... X
Mr. Neal........................ X Mr. English....... X
Mr. McNulty..................... X Mr. Weller........ X
Mr. Tanner...................... X Mr. Hulshof....... X
Mr. BeCerra..................... X Mr. Lewis (KY).... X
Mr. Doggett..................... X Mr. Brady......... X
Mr. Pomeroy..................... X Mr. Reynolds...... X
Ms. Tubbs Jones................. X Mr. Ryan.......... X
Mr. Thompson.................... X Mr. Cantor........ X
Mr. Larson...................... Mr. Linder........ X
Mr. Emanuel..................... X Mr. Nunes......... X
Mr. Blumenauer.................. X Mr. Tiberi........ X
Mr. Kind........................ X Mr. Porter........ X
Mr. Pascrell.................... X
Ms. Berkley..................... X
Mr. Crowley..................... X
Mr. Van Hollen.................. X
Mr. Meek........................ X
Ms. Schwartz.................... X
Mr. Davis....................... X
----------------------------------------------------------------------------------------------------------------
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made concerning the effects on the budget of the revenue
provisions of the bill, H.R. 5719 as reported.
The bill is estimated to have the following effects on
Federal budget receipts for fiscal years 2008-2018:
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that the revenue-reducing tax
provisions involve increased tax expenditures. (See amounts in
table in Part IV.A., above.)
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, April 14, 2008.
Hon. Charles B. Rangel,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 5719, the Taxpayer
Assistance and Simplification Act of 2008.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Zachary
Epstein.
Sincerely,
Robert A. Sunshine
(For Peter R. Orszag, Director).
Enclosure.
H.R. 5719--Taxpayer Assistance and Simplification Act of 2008
Summary: H.R. 5719 would make several changes to tax law.
The bill would reduce revenues by modifying standards placed on
preparers of tax returns, by loosening the restrictions on
deducting cellular phone costs as a business expense, by
delaying the withholding of taxes on payments for certain
government contracts, and by repealing the Internal Revenue
Service's (IRS's) authority to hire private debt collectors.
H.R. 5719 would raise revenues by requiring additional
information from preparers of tax returns regarding the use of
health savings accounts (HSAs) and subjecting the wages of
certain employees working under U.S. government contracts to
payroll taxes. The bill also would shift some corporate
receipts from 2014 into 2013.
The Joint Committee on Taxation (JCT) and the Congressional
Budget Office (CBO) estimate that enacting H.R. 5719 would
increase revenues by $41 million and reduce direct spending by
$247 million over the 2008-2018 period.
JCT reviewed the tax provisions of the bill and determined
that they contain no private-sector or intergovernmental
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
CBO has reviewed the nontax provisions of H.R. 5719 and
determined that they contain no intergovernmental mandates as
defined in UMRA.
CBO has determined that the nontax provisions contain a
private-sector mandate as defined is UMRA. The bill would
prohibit anyone from using words, abbreviations, titles, or
letters associated with the Department of the Treasury (or one
of its bureaus, offices, or subdivisions) as a part of an
Internet domain address in a manner that could be reasonably
interpreted as conveying the false impression that the domain
address is connected to or authorized by the department. Based
on information from industry sources, CBO expects the total
direct cost of the mandate would fall below the annual
threshold established by UMRA ($136 million in 2008, adjusted
annually for inflation) in the first five years the mandate is
in effect.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 5719 is shown in the following table.
The costs of this legislation fall within budget functions 800
(general government) and 650 (Social Security).
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
---------------------------------------------------------------------------------------------------------------
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008-2013 2008-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Standards for Tax Return Preparers...... 0 -1 -1 -2 -2 -2 -2 -2 -3 -3 -3 -9 -22
Expensing of Cellular Phone Use......... 0 -3 -8 -13 -18 -22 -26 -30 -34 -39 -44 -63 -237
Delay in Implementing Government 0 0 0 -6,313 5,998 0 0 0 0 0 0 -316 -316
Withholding............................
Repeal of Private Debt Collection 0 -26 -54 -59 -59 -59 -59 -59 -59 -59 -59 -257 -552
Contracting Authority..................
Substantiation of HSA Distributions..... 0 0 0 61 59 31 25 28 31 33 39 151 308
Employment Taxes on Wages Paid Under 14 81 80 81 83 84 85 86 88 89 90 422 860
Certain Government Contracts...........
Corporate Estimated Tax Payment Due in 0 0 0 0 0 147 -147 0 0 0 0 147 0
2013...................................
---------------------------------------------------------------------------------------------------------------
Total Change in Revenues................ 14 51 17 -6,245 6,061 179 -124 23 23 21 23 75 41
On-Budget Revenues.................. -1 -37 -70 -6,333 5,972 88 -216 -71 -72 -75 -75 -383 -891
Off-Budget Revenues................. 15 88 87 88 89 91 92 94 95 96 98 458 932
CHANGES IN DIRECT SPENDING (OUTLAYS) \2\
Wages Paid Under Certain Government * * * * 1 1 1 2 2 3 4 2 14
Contracts \1\..........................
Private Debt Collection Authority....... 0 -12 -25 -28 -28 -28 -28 -28 -28 -28 -28 -121 -261
---------------------------------------------------------------------------------------------------------------
Total Changes in Direct Spending........ * -12 -25 -28 -27 -27 -27 -26 -26 -25 -24 -119 -247
On-Budget Spending.................. 0 -12 -25 -28 -28 -28 -28 -28 -28 -28 -28 -121 -261
Off-Budget Spending................. * * * * 1 1 1 2 2 3 4 2 14
NET CHANGE IN THE BUDGET DEFICIT OR SURPLUS FROM CHANGES IN REVENUES AND DIRECT SPENDING
Net Change in the Deficit or Surplus \3\ 14 63 42 -6,217 6,088 206 -97 49 49 46 47 194 288
On-Budget........................... -1 -25 -45 -6,305 6,000 116 -188 -43 -44 -47 -47 -262 -630
Off-Budget.......................... 15 88 87 88 88 90 91 92 93 93 94 456 918
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Low-Income Taxpayer Clinics:
Estimated Authorization Level....... 0 4 4 4 4 4 4 4 4 4 4 20 40
Estimated Outlays................... 0 4 4 4 4 4 4 4 4 4 4 20 40
Other Provisions:
Estimated Authorization Level....... 0 3 2 2 2 2 2 2 2 2 2 11 21
Estimated Outlays................... 0 3 2 2 2 2 2 2 2 2 2 11 21
Total Changes:
Estimated Authorization Level....... 0 7 6 6 6 6 6 6 6 6 6 31 61
Estimated Outlays................... 0 7 6 6 6 6 6 6 6 6 6 31 61
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ A portion of the estimated effects on revenues, and all of the estimated effects on direct spending, are off-budget.
\2\ Changes in direct spending budget authority would be identical ot the changes in outlays for each year.
\3\ Negative numbers indicate increases in deficits (or decreases in surpluses); positive numbers indicate decreases in deficits (or increases in
surpluses).
Sources: Congressional Budget Office and Joint Committee on Taxation.
Notes: HSA = health savings account; * = less than $500,000.
Basis of the estimate: JCT estimated the effects of H.R.
5719 on revenues, and CBO estimated the effects on direct
spending.
Revenues
H.R. 5719 would affect revenues through a number of changes
to tax law, some of which, JCT estimates, would have a
negligible effect on revenues. Those provisions with measurable
effects are described below.
Standards for Preparers of Tax Returns. Under current law,
a preparer of tax returns can be subject to a penalty for
understating an income tax liability if the justification for
the tax position does not meet a certain standard. H.R. 5719
would reduce the standards that such preparers must meet when
not providing justification for a tax position. JCT estimates
that this provision would decrease revenues by $22 million over
the 2009-2018 period.
Expensing of Cellular Phone Use. Taxpayers can deduct
business expenses associated with the use of cellular
telephones only if they substantiate the use with detailed
information, including the date and amount of each use in a tax
year. Under the bill, the use of cellular telephones would not
be subject to such information requirements. JCT estimates that
this provision would decrease revenues by $237 million over the
2009-2018 period.
Delay on Implementation of Government Withholding. After
December 31, 2010, federal, state, and local government
entities making payments to persons providing goods and
services will be required to withhold for income tax purposes 3
percent of those payments. Under H.R. 5719, that witholding
would begin after December 31, 2011. JCT estimates that this
provision would decrease revenues in 2011 and increase them in
2012, with a net reduction in revenues of $316 million over the
2011-2012 period.
Repeal of IRS's Authority to Contract with Private Debt
Collectors. The bill would repeal the IRS's authority to enter
into qualified tax collection contracts with private collection
firms to collect delinquent tax liabilities. Any existing
contracts entered into after February 29, 2008, would be void,
as would any extensions or renewals occurring after such date.
JCT estimates that this change would reduce revenues by $552
million over the 2009-2018 period. The provision also would
affect direct spending (see ``Direct Spending'' section).
Substantiation of USA Distributions. Individuals who
maintain a health savings account must determine whether money
disbursed from the account and used to pay for a medical
expense should be included in their taxable income. Under the
bill, such persons would need to provide additional
substantiation that an HSA distribution qualifies as excludable
from taxable income. The additional requirements would apply to
amounts disbursed after December 31, 2010. JCT estimates that
this provision would increase revenues by $308 million over the
2011-2018 period.
Employment Taxes on Wages Paid Under Certain Government
Contracts. For the purposes of determining one's employment tax
liability, H.R. 5719 would extend the definition of a U.S.
employer to include foreign subsidiaries of U.S. parent
companies that employ a U.S. citizen working in connection with
a U.S. government contract. The controlling parent entity and
the employee of the foreign subsidiary would be liable for
employment taxes. JCT estimates that this change would increase
revenues by $860 million over the 2008-2018 period. Off-budget
revenues would increase by an estimated $932 million, and on-
budget revenues would decrease by an estimated $72 million over
that period. The provision also would affect direct spending
(see ``Direct Spending'' section).
Shifts in Corporate Estimated Payments. H.R. 5719 would
shift revenues between 2013 and 2014. For corporations with at
least $1 billion in assets, the bill would increase the portion
of corporate estimated tax payments due in July through
September of 2013. JCT estimates that this change would
increase revenues by $147 million in 2013 and decrease revenues
by $147 million in 2014.
Direct spending
Prohibition on the Use of Treasury Names and Symbols. The
bill would establish a new federal crime for the misuse of
Treasury names and symbols on the Internet. The bill also would
apply and increase civil and criminal penalties (that are
already levied on misuse of Treasury names in other mediums) to
such Internet misuse. Enacting the provision could increase
federal revenues and direct spending as a result of the
collection of additional civil and criminal penalties.
(Collections of civil penalties are recorded in the budget as
revenues, deposited in the Crime Victims Fund, and later spent
without further appropriation.) CBO estimates, however, that
any additional revenues and direct spending that would result
from enacting the bill would not be significant because of the
relatively small number of cases likely to be involved.
Repeal of IRS's Authority to Contract with Private Debt
Collectors. As discussed above in the ``Revenues'' section, the
bill, would repeal the authority for the IRS to enter into any
new or extended contracts for private debt collection. Under
current law, the IRS enters into contracts with private
collection firms to collect delinquent tax liabilities owed to
the federal government. Under those contracts, the IRS may
allow those firms to retain up to 25 percent of the amounts
they collect. Another 25 percent of amounts collected is
available to IRS to spend on collection enforcement activities.
Based on information from the IRS, CBO estimates that 47
percent of the amounts collected are retained by either the IRS
or the private collection firms. Thus, CBO estimates that
repealing the private debt collection authority and allowing
the current contracts to expire would reduce direct spending by
$261 million over the 2009-2018 period.
Employment Taxes on Wages Paid Under Certain Government
Contracts. As discussed above, the bill would require certain
U.S. parent companies with foreign subsidiaries to pay
employment taxes on behalf of some employees. Those employees
also would be liable for their share of employment taxes.
Because Social Security benefits are calculated by a formula
that is based on lifetime earnings subject to employment taxes,
increasing the amount of earnings counted in the benefit
formula would increase Social Security benefits. CBO estimates
that enacting the provision would increase direct spending for
Social Security benefits by less than $500,000 in 2008 and by
$14 million over the 2009-2018 period.
Spending subject to appropriation
Clinics for Low-Income Taxpayers. Under current law, the
Secretary of the Treasury is authorized to provide up to $6
million per year to clinics for low-income taxpayers. The bill
would increase this authorization to $10 million per year and
allow volunteers who provide income tax assistance to receive
grants. Assuming appropriation of the specified amounts
beginning in 2009, CBO estimates that implementing this
provision would cost $40 million over the 2009-2018 period.
Other Provisions. H.R. 5719 would require the IRS to notify
any taxpayer when the agency determines that the taxpayer has
been a victim of identity theft and when any criminal charges
have been filed. The bill also would require, to the extent
possible, that the IRS annually provide written notice to
taxpayers who may qualify for an earned income tax credit or
refund. In addition, H.R. 5719 would require a report by the
Treasury on the feasibility to delivering tax refunds through
electronic means to individuals who do not have a bank account.
Based on information from IRS, and assuming the appropriation
of the necessary amounts, CBO estimates that implementing those
provisions would cost $3 million in 2009 and $2 million in each
subsequent year.
Intergovernmental and private-sector impact: JCT reviewed
the tax provisions of the bill and determined that they contain
no private-sector or intergovernmental mandates as defined in
UMRA. CBO has reviewed the nontax provisions and determined
that they contain no intergovernmental mandates as defined in
UMRA.
CBO has determined that the nontax provisions of H.R. 5719
contain a private-sector mandate as defined in UMRA. The bill
would prohibit anyone from using words, abbreviations, titles,
or letters associated with the Department of the Treasury (or
one of its bureaus, offices, or subdivisions) as a part of an
Internet domain address in a manner that could be reasonably
interpreted as conveying the false impression that the domain
address is connected to or authorized by the department.
The costs of the mandate would be the expenditures incurred
to bring such an Internet domain address into compliance, added
to any loss of net income associated with those changes.
Current law already prohibits the use of words or symbols
related to the Department of the Treasury in connection with
advertisements, solicitations, or other business activities in
such a manner. Based on information from industry sources, CBO
expects the total direct cost of the mandate would fall below
the annual threshold established by UMRA ($136 million in 2008,
adjusted annually for inflation).
Estimate prepared by: Federal Revenues: Zachary Epstein;
Federal Spending: Matthew Pickford and Sheila Dacey; Impact on
State, Local, and Tribal Governments: Elizabeth Cove; and
Impact on the Private Sector: Jacob Kuipers.
Estimate approved by: G. Thomas Woodward, Assistant
Director for Tax Analysis and Peter H. Fontaine, Assistant
Director for Budget Analysis.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it is appropriate and timely to
enact the revenue provisions included in the bill as reported.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Constitutional Authority Statement
With respect to clause 3(d)(1) of rule XIII of the Rules of
the House of Representatives (relating to Constitutional
Authority), the Committee states that the Committee's action in
reporting this bill is derived from Article I of the
Constitution, Section 8 (``The Congress shall have Power To lay
and collect Taxes, Duties, Imposts and Excises''), and from the
16th Amendment to the Constitution.
D. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
The Committee has determined that the revenue provisions of
the bill contain no Federal private sector mandates or Federal
intergovernmental mandates on State, local, or tribal
governments.
E. Applicability of House Rule XXI 5(b)
Clause 5 of rule XXI of the Rules of the House of
Representatives provides, in part, that ``A bill or joint
resolution, amendment, or conference report carrying a Federal
income tax rate increase may not be considered as passed or
agreed to unless so determined by a vote of not less than
three-fifths of the Members voting, a quorum being present.''
The Committee has carefully reviewed the provisions of the
bill, and states that the provisions of the bill do not involve
any Federal income tax rate increases within the meaning of the
rule.
F. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the
Joint Committee on Taxation (in consultation with the Internal
Revenue Service and the Department of the Treasury) to provide
a tax complexity analysis. The complexity analysis is required
for all legislation reported by the Senate Committee on
Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code
and has widespread applicability to individuals or small
businesses:
The staff of the Joint Committee on Taxation has determined
that a complexity analysis is not required under section
4022(b) of the IRS Reform Act because the bill contains no
provisions that amend the Code and that have ``widespread
applicability'' to individuals or small businesses.
G. Limited Tax Benefits
Pursuant to clause 9 of rule XXI of the Rules of the House
of Representatives, the Ways and Means Committee has determined
that the bill as reported contains no congressional earmarks,
limited tax benefits, or limited tariff benefits within the
meaning of that rule.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of Tax Liability
* * * * * * *
PART IV--CREDITS AGAINST TAX
* * * * * * *
Subpart C--Refundable Credits
* * * * * * *
SEC. 32. EARNED INCOME.
(a) * * *
* * * * * * *
(n) Notification of Potential Eligibility for Credit and
Refund.--
(1) In general.--To the extent possible and on an
annual basis, the Secretary shall provide to each
taxpayer who--
(A) for any preceding taxable year for which
credit or refund is not precluded by section
6511, and
(B) did not claim the credit under subsection
(a) but may be allowed such credit for any such
taxable year based on return or return
information (as defined in section 6103(b))
available to the Secretary,
notice that such taxpayer may be eligible to claim such
credit and a refund for such taxable year.
(2) Notice.--Notice provided under paragraph (1)
shall be in writing and sent to the last known address
of the taxpayer.
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 223. HEALTH SAVINGS ACCOUNTS.
(a) * * *
* * * * * * *
(f) Tax Treatment of Distributions.--
(1) Amounts used for qualified medical expenses.--Any
amount paid or distributed out of a health savings
account which is used exclusively to pay qualified
medical expenses of any account beneficiary (and, in
the case of amounts paid or distributed after December
31, 2010, substantiated in a manner similar to the
substantiation required for flexible spending
arrangements) shall not be includible in gross income.
* * * * * * *
[(h) Reports.--The Secretary may require--]
(h) Reports.--
(1) In general.--The Secretary may require--
[(1)] (A) the trustee of a health savings
account to make such reports regarding such
account to the Secretary and to the account
beneficiary with respect to contributions,
distributions, the return of excess
contributions, and such other matters as the
Secretary determines appropriate, and
[(2)] (B) any person who provides an
individual with a high deductible health plan
to make such reports to the Secretary and to
the account beneficiary with respect to such
plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed
at such time and in such manner and furnished to such
individuals at such time and in such manner as may be
required by the Secretary.
(2) Relating to substantiation.--Not later than
January 15 of each calendar year after 2011, the
trustee of a health savings account shall make a report
regarding such account to the Secretary and the account
beneficiary setting forth--
(A) the name, address, and identifying number
of the account beneficiary, and
(B) the amount paid or distributed out of
such account for the preceding calendar year
not substantiated in accordance with subsection
(f)(1).
* * * * * * *
PART IX--ITEMS NOT DEDUCTIBLE
* * * * * * *
SEC. 280F. LIMITATION ON DEPRECIATION FOR LUXURY AUTOMOBILES;
LIMITATION WHERE CERTAIN PROPERTY USED FOR PERSONAL
PURPOSES.
(a) * * *
* * * * * * *
(d) Definitions and Special Rules.--For purposes of this
section--
(1) * * *
* * * * * * *
(4) Listed property.--
(A) In general.--Except as provided in
subparagraph (B), the term ``listed property''
means--
(i) any passenger automobile,
* * * * * * *
(iv) any computer or peripheral
equipment (as defined in section
168(i)(2)(B)), and
[(v) any cellular telephone (or other
similar telecommunications equipment),
and]
[(vi)] (v) any other property of a
type specified by the Secretary by
regulations.
* * * * * * *
Subtitle C--Employment Taxes
* * * * * * *
CHAPTER 21--FEDERAL INSURANCE CONTRIBUTIONS ACT
* * * * * * *
Subchapter C--General Provisions
* * * * * * *
SEC. 3121. DEFINITIONS.
(a) * * *
* * * * * * *
(z) Treatment of Certain Foreign Persons as American
Employers.--
(1) In general.--If any employee of a foreign person
is performing services in connection with a contract
between the United States Government (or any
instrumentality thereof) and any member of any
domestically controlled group of entities which
includes such foreign person, such foreign person shall
be treated for purposes of this chapter as an American
employer with respect to such services performed by
such employee.
(2) Domestically controlled group of entities.--For
purposes of this subsection--
(A) In general.--The term ``domestically
controlled group of entities'' means a
controlled group of entities the common parent
of which is a domestic corporation.
(B) Controlled group of entities.--The term
``controlled group of entities'' means a
controlled group of corporations as defined in
section 1563(a)(1), except that--
(i) ``more than 50 percent'' shall be
substituted for ``at least 80 percent''
each place it appears therein, and
(ii) the determination shall be made
without regard to subsections (a)(4)
and (b)(2) of section 1563.
A partnership or any other entity (other than a
corporation) shall be treated as a member of a
controlled group of entities if such entity is
controlled (within the meaning of section
954(d)(3)) by members of such group (including
any entity treated as a member of such group by
reason of this sentence).
(3) Liability of common parent.--In the case of a
foreign person who is a member of any domestically
controlled group of entities, the common parent of such
group shall be jointly and severally liable for any tax
under this chapter for which such foreign person is
liable by reason of this subsection, and for any
penalty imposed on such person by this title with
respect to any failure to pay such tax or to file any
return or statement with respect to such tax or wages
subject to such tax. No deduction shall be allowed
under this title for any liability imposed by the
preceding sentence.
(4) Coordination.--Paragraph (1) shall not apply to
any services which are covered by an agreement under
subsection (l).
(5) Cross reference.--For relief from taxes in cases
covered by certain international agreements, see
sections 3101(c) and 3111(c).
* * * * * * *
CHAPTER 25--GENERAL PROVISIONS RELATING TO EMPLOYMENT TAXES
Sec. 3501. Collection and payment of taxes.
* * * * * * *
Sec. 3511. Elderly and disabled individuals receiving in-home care under
certain government programs.
* * * * * * *
SEC. 3511. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE
UNDER CERTAIN GOVERNMENT PROGRAMS.
(a) In General.--In the case of amounts paid under a home
care service program to a home care service provider by the
fiscal administrator of such program--
(1) the home care service recipient shall not be
liable for the payment of any taxes imposed under this
subtitle with respect to amounts paid for the provision
of services under such program, and
(2) the fiscal administrator shall be so liable.
(b) Definitions.--For purposes of this section--
(1) Home care service program.--The term ``home care
service program'' means a State or local government
program--
(A) any portion of which is funded with
Federal funds, and
(B) under which domestic services are
provided to elderly or disabled individuals in
their homes.
Such term shall not include any program to the extent
home care service recipients make payments to the home
care service providers for such in-home domestic
services.
(2) Home care service provider.--The term ``home care
service provider'' means any individual who provides
domestic services to a home care service recipient
under a home care service program.
(3) Home care service recipient.--The term ``home
care service recipient'' means any individual receiving
domestic services under a home care service program.
(4) Fiscal administrator.--The term ``fiscal
administrator'' means any person or governmental entity
who pays amounts under a home care service program to
home care service providers for the provision of
domestic services under such program.
(c) Returns by Fiscal Administrator.--For purposes of this
section--
(1) In general.--Returns relating to taxes imposed or
amounts required to be withheld under this subtitle
shall be made under the identifying number of the
fiscal administrator.
(2) Identification of service recipient.--The fiscal
administrator shall, to the extent required under
regulations prescribed by the Secretary, make a return
setting forth--
(A) the name, address, and identifying number
of each home care service recipient for whom
amounts are paid by such fiscal administrator
under the home care services program, and
(B) such other information as the Secretary
may require.
(d) Regulations.--The Secretary may prescribe such
regulations or other guidance as may be necessary to carry out
the purposes of this section, including requiring deposits of
any tax imposed under this subtitle.
* * * * * * *
Subtitle F--Procedure and Administration
* * * * * * *
CHAPTER 61--INFORMATION AND RETURNS
* * * * * * *
Subchapter A--Returns and Records
* * * * * * *
PART II--TAX RETURNS OR STATEMENTS
* * * * * * *
Subpart A--General Requirement
* * * * * * *
SEC. 6011. GENERAL REQUIREMENT OF RETURN, STATEMENT, OR LIST.
(a) * * *
* * * * * * *
(f) Promotion of Electronic Filing.--
(1) * * *
* * * * * * *
(3) Prohibition on irs debt indicators for predatory
refund anticipation loans.--
(A) In general.--In carrying out any program
under this subsection, the Secretary shall not
provide a debt indicator to any person with
respect to any refund anticipation loan if the
Secretary determines that the business
practices of such person involve refund
anticipation loans and related charges and fees
that are predatory.
(B) Refund anticipation loan.--For purposes
of this paragraph, the term ``refund
anticipation loan'' means a loan of money or of
any other thing of value to a taxpayer secured
by the taxpayer's anticipated receipt of a
Federal tax refund.
(C) IRS debt indicator.--For purposes of this
paragraph, the term ``debt indicator'' means a
notification provided through a tax return's
acknowledgment file that a refund will be
offset to repay debts for delinquent Federal or
State taxes, student loans, child support, or
other Federal agency debt.
* * * * * * *
Subchapter B--Miscellaneous Provisions
* * * * * * *
SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN
INFORMATION.
(a) * * *
* * * * * * *
(m) Disclosure of Taxpayer Identity Information.--
(1) Tax refunds.--The Secretary may disclose taxpayer
identity information to the press and other media, and
through any other means of mass communication, for
purposes of notifying persons entitled to tax refunds
when the Secretary, after reasonable effort and lapse
of time, has been unable to locate such persons.
* * * * * * *
CHAPTER 64--COLLECTION
* * * * * * *
Subchapter A--General Provisions
* * * * * * *
Sec. 6301. Collection authority.
* * * * * * *
[Sec. 6306. Qualified tax collection contracts.]
* * * * * * *
[SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.
[(a) In General.--Nothing in any provision of law shall be
construed to prevent the Secretary from entering into a
qualified tax collection contract.
[(b) Qualified Tax Collection Contract.--For purposes of this
section, the term ``qualified tax collection contract'' means
any contract which--
[(1) is for the services of any person (other than an
officer or employee of the Treasury Department)--
[(A) to locate and contact any taxpayer
specified by the Secretary,
[(B) to request full payment from such
taxpayer of an amount of Federal tax specified
by the Secretary and, if such request cannot be
met by the taxpayer, to offer the taxpayer an
installment agreement providing for full
payment of such amount during a period not to
exceed 5 years, and
[(C) to obtain financial information
specified by the Secretary with respect to such
taxpayer,
[(2) prohibits each person providing such services
under such contract from committing any act or omission
which employees of the Internal Revenue Service are
prohibited from committing in the performance of
similar services,
[(3) prohibits subcontractors from--
[(A) having contacts with taxpayers,
[(B) providing quality assurance services,
and
[(C) composing debt collection notices, and
[(4) permits subcontractors to perform other services
only with the approval of the Secretary.
[(c) Fees.--The Secretary may retain and use--
[(1) an amount not in excess of 25 percent of the
amount collected under any qualified tax collection
contract for the costs of services performed under such
contract, and
[(2) an amount not in excess of 25 percent of such
amount collected for collection enforcement activities
of the Internal Revenue Service.
The Secretary shall keep adequate records regarding amounts so
retained and used. The amount credited as paid by any taxpayer
shall be determined without regard to this subsection.
[(d) No Federal Liability.--The United States shall not be
liable for any act or omission of any person performing
services under a qualified tax collection contract.
[(e) Application of Fair Debt Collection Practices Act.--The
provisions of the Fair Debt Collection Practices Act (15 U.S.C.
1692 et seq.) shall apply to any qualified tax collection
contract, except to the extent superseded by section 6304,
section 7602(c), or by any other provision of this title.
[(f) Cross References.--
[(1) For damages for certain unauthorized collection
actions by persons performing services under a
qualified tax collection contract, see section 7433A.
[(2) For application of Taxpayer Assistance Orders to
persons performing services under a qualified tax
collection contract, see section 7811(g).]
* * * * * * *
Subchapter D--Seizure of Property for Collection of Taxes
* * * * * * *
PART II--LEVY
* * * * * * *
SEC. 6343. AUTHORITY TO RELEASE LEVY AND RETURN PROPERTY.
(a) * * *
(b) Return of Property.--If the Secretary determines that
property has been wrongfully levied upon, it shall be lawful
for the Secretary to return--
(1) * * *
* * * * * * *
Property may be returned at any time. An amount equal to the
amount of money levied upon or received from such sale may be
returned at any time before the expiration of [9 months] 2
years from the date of such levy. For purposes of paragraph
(3), if property is declared purchased by the United States at
a sale pursuant to section 6335(e) (relating to manner and
conditions of sale), the United States shall be treated as
having received an amount of money equal to the minimum price
determined pursuant to such section or (if larger) the amount
received by the United States from the resale of such property.
* * * * * * *
(f) Individuals Held Harmless on Wrongful Levy, etc. on
Individual Retirement Plan.--
(1) In general.--If the Secretary determines that an
individual retirement plan has been levied upon in a
case to which subsection (b) or (d)(2)(A) applies, an
amount equal to the sum of--
(A) the amount of money returned by the
Secretary on account of such levy, and
(B) interest paid under subsection (c) on
such amount of money,
may be deposited into such individual retirement plan
or any other individual retirement plan (other than an
endowment contract) to which a rollover from the plan
levied upon is permitted. An amount may not be
deposited into a Roth IRA under the preceding sentence
unless the individual retirement plan levied upon was a
Roth IRA at the time of such levy.
(2) Treatment as rollover.--If amounts are deposited
into an individual retirement plan under paragraph (1)
not later than the 60th day after the date on which the
individual receives the amounts under paragraph (1)--
(A) such deposit shall be treated as a
rollover described in section 408(d)(3)(A)(i),
(B) to the extent the deposit includes
interest paid under subsection (c), such
interest shall not be includible in gross
income, and
(C) such deposit shall not be taken into
account under section 408(d)(3)(B).
For purposes of subparagraph (B), an amount shall be
treated as interest only to the extent that the amount
deposited exceeds the amount of the levy.
(3) Refund, etc., of income tax on levy.--If any
amount is includible in gross income for a taxable year
by reason of a levy referred to in paragraph (1) and
any portion of such amount is treated as a rollover
under paragraph (2), any tax imposed by chapter 1 on
such portion shall not be assessed, and if assessed
shall be abated, and if collected shall be credited or
refunded as an overpayment made on the due date for
filing the return of tax for such taxable year.
(4) Interest.--Notwithstanding subsection (d),
interest shall be allowed under subsection (c) in a
case in which the Secretary makes a determination
described in subsection (d)(2)(A) with respect to a
levy upon an individual retirement plan.
* * * * * * *
CHAPTER 66--LIMITATIONS
* * * * * * *
Subchapter D--Periods of Limitation in Judicial Proceedings
* * * * * * *
SEC. 6532. PERIODS OF LIMITATION ON SUITS.
(a) * * *
* * * * * * *
(c) Suits by Persons Other Than Taxpayers.--
(1) General rule.--Except as provided by paragraph
(2), no suit or proceeding under section 7426 shall be
begun after the expiration of [9 months] 2 years from
the date of the levy or agreement giving rise to such
action.
(2) Period when claim is filed.--If a request is made
for the return of property described in section
6343(b), the [9-month] 2-year period prescribed in
paragraph (1) shall be extended for a period of 12
months from the date of filing of such request or for a
period of 6 months from the date of mailing by
registered or certified mail by the Secretary to the
person making such request of a notice of disallowance
of the part of the request to which the action relates,
whichever is shorter.
* * * * * * *
CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE
PENALTIES
* * * * * * *
Subchapter B--Assessable Penalties
* * * * * * *
PART I--GENERAL PROVISIONS
* * * * * * *
SEC. 6694. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY TAX RETURN
PREPARER.
[(a) Understatement Due to Unreasonable Positions.--
[(1) In general.--Any tax return preparer who
prepares any return or claim for refund with respect to
which any part of an understatement of liability is due
to a position described in paragraph (2) shall pay a
penalty with respect to each such return or claim in an
amount equal to the greater of--
[(A) $1,000, or
[(B) 50 percent of the income derived (or to
be derived) by the tax return preparer with
respect to the return or claim.
[(2) Unreasonable position.--A position is described
in this paragraph if--
[(A) the tax return preparer knew (or
reasonably should have known) of the position,
[(B) there was not a reasonable belief that
the position would more likely than not be
sustained on its merits, and
[(C)(i) the position was not disclosed as
provided in section 6662(d)(2)(B)(ii), or (ii)
there was no reasonable basis for the position.
[(3) Reasonable cause exception.--No penalty shall be
imposed under this subsection if it is shown that there
is reasonable cause for the understatement and the tax
return preparer acted in good faith.]
(a) Understatement Due to Unreasonable Positions.--
(1) In general.--If a tax return preparer--
(A) prepares any return or claim of refund
with respect to which any part of an
understatement of liability is due to a
position described in paragraph (2), and
(B) knew (or reasonably should have known) of
the position,
such tax return preparer shall pay a penalty with
respect to each such return or claim in an amount equal
to the greater of $1,000 or 50 percent of the income
derived (or to be derived) by the tax return preparer
with respect to the return or claim.
(2) Unreasonable position.--
(A) In general.--Except as otherwise provided
in this paragraph, a position is described in
this paragraph unless there is or was
substantial authority for the position.
(B) Disclosed positions.--If the position was
disclosed as provided in section
6662(d)(2)(B)(ii)(I) and is not a position to
which subparagraph (C) applies, the position is
described in this paragraph unless there is a
reasonable basis for the position.
(C) Tax shelters and reportable
transactions.--If the position is with respect
to a tax shelter (as defined in section
6662(d)(2)(C)(ii)) or a reportable transaction
to which section 6662A applies, the position is
described in this paragraph unless it is
reasonable to believe that the position would
more likely than not be sustained on its
merits.
(3) Reasonable cause exception.--No penalty shall be
imposed under this subsection if it is shown that there
is reasonable cause for the understatement and the tax
return preparer acted in good faith.
* * * * * * *
PART II--FAILURE TO COMPLY WITH CERTAIN INFORMATION REPORTING
REQUIREMENTS
* * * * * * *
SEC. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES.
(a) * * *
* * * * * * *
(d) Definitions.--For purposes of this part--
(1) * * *
* * * * * * *
(3) Specified information reporting requirement.--The
term ``specified information reporting requirement''
means--
(A) * * *
* * * * * * *
(C) any requirement contained in the
regulations prescribed under section 215 that a
person--
(i) * * *
(ii) include on his return the TIN of
another person, [and]
(D) any requirement under section 6109(h)
that--
(i) * * *
(ii) a person furnish his TIN to
another person[.], and
(E) any requirement under section 3511(c)(2).
* * * * * * *
CHAPTER 76--JUDICIAL PROCEEDINGS
* * * * * * *
Subchapter B--Proceedings by Taxpayers and Third Parties
* * * * * * *
Sec. 7421. Prohibition of suits to restrain assessment or collection.
* * * * * * *
[Sec. 7433A. Civil damages for certain unauthorized collection actions
by persons performing services under qualified tax collection
contracts.]
* * * * * * *
[SEC. 7433A. CIVIL DAMAGES FOR CERTAIN UNAUTHORIZED COLLECTION ACTIONS
BY PERSONS PERFORMING SERVICES UNDER QUALIFIED TAX
COLLECTION CONTRACTS.
[(a) In General.--Subject to the modifications provided by
subsection (b), section 7433 shall apply to the acts and
omissions of any person performing services under a qualified
tax collection contract (as defined in section 6306(b)) to the
same extent and in the same manner as if such person were an
employee of the Internal Revenue Service.
[(b) Modifications.--For purposes of subsection (a):
[(1) Any civil action brought under section 7433 by
reason of this section shall be brought against the
person who entered into the qualified tax collection
contract with the Secretary and shall not be brought
against the United States.
[(2) Such person and not the United States shall be
liable for any damages and costs determined in such
civil action.
[(3) Such civil action shall not be an exclusive
remedy with respect to such person.
[(4) Subsections (c), (d)(1), and (e) of section 7433
shall not apply.]
* * * * * * *
CHAPTER 77--MISCELLANEOUS PROVISIONS
Sec. 7501. Liability for taxes withheld or collected.
* * * * * * *
Sec. 7526. Low-income taxpayer clinics.
Sec. 7526A. Volunteer income tax assistance programs.
* * * * * * *
Sec. 7529. Notification of suspected identity theft.
* * * * * * *
SEC. 7526. LOW-INCOME TAXPAYER CLINICS.
(a) * * *
* * * * * * *
(c) Special Rules and Limitations.--
(1) Aggregate limitation.--Unless otherwise provided
by specific appropriation, the Secretary shall not
allocate more than [$6,000,000] $10,000,000 per year
(exclusive of costs of administering the program) to
grants under this section.
* * * * * * *
(5) Requirement of matching funds.--A qualified low-
income taxpayer clinic must provide matching funds on a
dollar-for-dollar basis for all grants provided under
this section. Matching funds may include--
(A) * * *
* * * * * * *
(6) Treasury employees permitted to refer taxpayers
to qualified low-income taxpayer clinics.--
Notwithstanding any other provision of law, officers
and employees of the Department of the Treasury may
refer taxpayers for advice and assistance to qualified
low-income taxpayer clinics receiving funding under
this section.
* * * * * * *
SEC. 7526A. VOLUNTEER INCOME TAX ASSISTANCE PROGRAMS.
(a) In General.--The Secretary may, subject to the
availability of appropriated funds, make grants to provide
matching funds for the development, expansion, or continuation
of volunteer income tax assistance programs.
(b) Volunteer Income Tax Assistance Program.--For purposes of
this section, the term ``volunteer income tax assistance
program'' means a program--
(1) which does not charge taxpayers for its return
preparation services,
(2) which operates programs to assist low and
moderate-income (as determined by the Secretary)
taxpayers in preparing and filing their Federal income
tax returns, and
(3) in which all of the volunteers who assist in the
preparation of Federal income tax returns meet the
requirements prescribed by the Secretary.
(c) Special Rules and Limitations.--
(1) Aggregate limitation.--Unless otherwise provided
by specific appropriation, the Secretary shall not
allocate more than $10,000,000 per year (exclusive of
costs of administering the program) to grants under
this section.
(2) Other applicable rules.--Rules similar to the
rules under paragraphs (2) through (6) of section
7526(c) shall apply with respect to the awarding of
grants to volunteer income tax assistance programs.
* * * * * * *
SEC. 7529. NOTIFICATION OF SUSPECTED IDENTITY THEFT.
If, in the course of an investigation under the internal
revenue laws, the Secretary determines that there was or may
have been an unauthorized use of the identity of the taxpayer
or a dependent of the taxpayer, the Secretary shall, to the
extent permitted by law--
(1) as soon as practicable and without jeopardizing
such investigation, notify the taxpayer of such
determination, and
(2) if any person is criminally charged by indictment
or information with respect to such unauthorized use,
notify such taxpayer as soon as practicable of such
charge.
* * * * * * *
CHAPTER 80--GENERAL RULES
* * * * * * *
Subchapter A--Application of Internal Revenue Laws
* * * * * * *
SEC. 7811. TAXPAYER ASSISTANCE ORDERS.
(a) * * *
* * * * * * *
[(g) Application to Persons Performing Services Under a
Qualified Tax Collection Contract.--Any order issued or action
taken by the National Taxpayer Advocate pursuant to this
section shall apply to persons performing services under a
qualified tax collection contract (as defined in section
6306(b)) to the same extent and in the same manner as such
order or action applies to the Secretary.]
* * * * * * *
----------
SECTION 511 OF THE TAX INCREASE PREVENTION AND RECONCILIATION ACT OF
2005
SEC. 511. IMPOSITION OF WITHHOLDING ON CERTAIN PAYMENTS MADE BY
GOVERNMENT ENTITIES.
(a) * * *
(b) Effective Date.--The amendment made by this section shall
apply to payments made after [December 31, 2010] December 31,
2011.
----------
SECTION 1203 INTERNAL REVENUE SERVICE RESTRUCTURING AND REFORM ACT OF
1998
SEC. 1203. TERMINATION OF EMPLOYMENT FOR MISCONDUCT.
(a) * * *
* * * * * * *
[(e) Individuals Performing Services Under a Qualified Tax
Collection Contract.--An individual shall cease to be permitted
to perform any services under any qualified tax collection
contract (as defined in section 6306(b) of the Internal Revenue
Code of 1986) if there is a final determination by the
Secretary of the Treasury under such contract that such
individual committed any act or omission described under
subsection (b) in connection with the performance of such
services.]
* * * * * * *
----------
SECTION 333 OF TITLE 31, UNITED STATES CODE
Sec. 333. Prohibition of misuse of Department of the Treasury names,
symbols, etc
(a) General Rule.--No person may use, in connection with, or
as a part of, any advertisement, solicitation, Internet domain
address, business activity, or product, whether alone or with
other words, letters, symbols, or emblems--
(1) * * *
* * * * * * *
in a manner which could reasonably be interpreted or construed
as conveying the false impression that such advertisement,
solicitation, Internet domain address, business activity, or
product is in any manner approved, endorsed, sponsored, or
authorized by, or associated with, the Department of the
Treasury or any entity referred to in paragraph (1) or any
officer or employee thereof.
* * * * * * *
(c) Civil Penalty.--
(1) * * *
(2) Amount of penalty.--The amount of the civil
penalty imposed by paragraph (1) shall not exceed
$5,000 for each use of any material in violation of
subsection (a). If such use is in a broadcast or
telecast, or any other mass communications by
electronic means, the preceding sentence shall be
applied by substituting ``$25,000'' for ``$5,000''.
* * * * * * *
(d) Criminal Penalty.--
(1) In general.--If any person knowingly violates
subsection (a), such person shall, upon conviction
thereof, be fined not more than $10,000 for each such
use or imprisoned not more than 1 year, or both. If
such use is in a broadcast or telecast, or any other
mass communications by electronic means, the preceding
sentence shall be applied by substituting ``$50,000''
for ``$10,000''.
* * * * * * *
----------
SECTION 210 OF THE SOCIAL SECURITY ACT
DEFINITION OF EMPLOYMENT
Sec. 210. For the purposes of this title--
Employment
(a) * * *
* * * * * * *
American Employer
(e)(1) The term ``American employer'' means an employer which
is [(1)] (A) the United States or any instrumentality thereof,
[(2)] (B) a State or any political subdivision thereof, or any
instrumentality of any one or more of the foregoing, [(3)] (C)
an individual who is a resident of the United States, [(4)] (D)
a partnership, if two-thirds or more of the partners are
residents of the United States, [(5)] (E) a trust, if all of
the trustees are residents of the United States, or [(6)] (F) a
corporation organized under the laws of the United States or of
any State.
(2)(A) If any employee of a foreign person is performing
services in connection with a contract between the United
States Government (or any instrumentality thereof) and any
member of any domestically controlled group of entities which
includes such foreign person, such foreign person shall be
treated as an American employer with respect to such services
performed by such employee.
(B) For purposes of this paragraph--
(i) The term ``domestically controlled group of
entities'' means a controlled group of entities the
common parent of which is a domestic corporation.
(ii) The term ``controlled group of entities'' means
a controlled group of corporations as defined in
section 1563(a)(1) of the Internal Revenue Code of
1986, except that--
(I) ``more than 50 percent'' shall be
substituted for ``at least 80 percent'' each
place it appears therein, and
(II) the determination shall be made without
regard to subsections (a)(4) and (b)(2) of
section 1563 of such Code.
A partnership or any other entity (other than a
corporation) shall be treated as a member of a
controlled group of entities if such entity is
controlled (within the meaning of section 954(d)(3) of
such Code) by members of such group (including any
entity treated as a member of such group by reason of
this sentence).
* * * * * * *
VI. DISSENTING VIEWS
Last year, each of us voted for H.R. 1677, a bill
containing many of the same provisions as were included in this
bill. That measure passed by a vote of 407 to 7, showing many
of the items enjoy strong, bipartisan support. And we were
pleased by the inclusion of new language this year related to
tax return preparers and employer-provided cell phones. Many of
us have been advocates for those changes for some time.
It was thus disappointing that the Majority elected to turn
what should have been a triumph of bipartisanship into a highly
partisan exercise by including two items to which we strongly
object.
PRIVATE TAX COLLECTION
On Wednesday, May 23, 2007, the Ways and Means Committee
held a hearing on the Internal Revenue Service's use of private
collection agencies (PCAs) to collect Federal income taxes.
During the hearing we heard repeated assurances from the IRS
that the tax liabilities assigned to PCAs for collection would
otherwise go uncollected even if the IRS had a greater
enforcement budget. Turning a deaf ear, last year the Democrats
put forth H.R. 3056 with repeal of the IRS's authority to. use
PCAs as the bill's centerpiece. We opposed passage of that
bill. With this bill, HR. 5719, once again, the Majority is
proposing to terminate the private collection agency program.
They already passed a bill on the floor of the House this
Congress to repeal the program, but here we are again, wasting
time doing the same thing.
As before, we strongly oppose the provision killing the
private collection agency program. The hearing we held last
year showed the skill and patience PCA employees employ to
avoid disclosing any confidential taxpayer information. Even
though the PCAs lack many of the enforcement-enhancing tools of
the IRS, such as lien and levy, they are successfully
collecting millions of dollars in unpaid taxes that the IRS
would not otherwise pursue.
These are liabilities which are not in dispute. The
taxpayer simply chose not to pay, even after the IRS sent
multiple notices reminding the affected taxpayers of their
unpaid obligation. During consideration of the bill, Members of
the Majority spoke of the ``special relationship'' between
taxpayers and the IRS. Most taxpayers we talk to would--hardly
consider that relationship special. And for those who have
ignored multiple. notices from the IRS about the delinquent
liabilities, it-is even harder to characterize the relationship
that way.
The Majority attempted to argue the cost to taxpayers would
be even less if the IRS went after these obligations,. This is
not true. The IRS is presently ill-equipped to engage in the
massive outbound call operations the PCAs use to collect these
obligations. The Majority cited poorly designed estimates that
compared the efficiency of the IRS with PCAs on an apples-to-
oranges basis which fail to account for the large costs the IRS
would have to incur to tackle these cases and other factors. In
fact, a GAO report (GAO-04-492) looked to an apples-to-apples
comparison ``. . . under which the IRS would hire additional
staff to work on the same volume for selected types of cases on
which the PCAs would work. According to the report, PCAs would
generate $4.6 in revenue for every dollar in cost and IRS
employees would generate $4.1.''
As of February 23, 2008, 98,000 cases have been placed with
the PCAs. Full payment has been received for more than 12,000
tax debts. In addition, more than 5,000 debts are being paid
through installment agreements. The PCAs have already collected
more than $46 million in gross revenue that would not have been
collected otherwise, making this a tax-gap closing program with
a proven track record.
The PCA program has done all of this while preserving
confidential taxpayer information. In fact, on March 26, 2008,
the Treasury Inspector General for Tax Administration (TIGTA)
issued a report titled ``Private Collection Agencies Adequately
Protected Taxpayer Data.'' In the report TIGTA says:
We reviewed the computer security controls over
taxpayer data provided to the two current PCAs and
determined that the controls were adequate. In
particular, files were securely transmitted from the
IRS to the contractors and adequately secured on the
contractors' systems. In addition, workstations used by
contractor collection personnel were adequately
controlled to prevent unauthorized copying of taxpayer
information to removable media or transfer via email.
The contractors. also maintained adequate audit trails
and performed periodic reviews, including reviews to
identify unauthorized access to taxpayer data.
In contrast to this report, TIGTA issued a report after
investigating IRS computer security controls on the same date
titled ``Inadequate Controls over Routers and Switches
Jeopardize Sensitive Taxpayer Information.'' This report once
again cited the IRS for not having adequate controls over their
computer systems placing confidential taxpayer information at
risk of theft or other misuse. We do not mention this to
embarrass the many responsible public servants that work at the
IRS, but to highlight the competent and responsible nature of
the PCA professionals working for this program.
According to the Joint Committee on Taxation, killing the
program will reduce Federal budget receipts by approximately
$600 million during the 2008 to 2018 period. We continue to be
amazed that the Majority, despite their zeal to reduce the
deficit and ensure everyone pays their fair share of taxes, is
moving in the opposite direction in its attempt to kill this
program.
SUBSTANTIATION OF HSA DISTRIBUTIONS
We also object to the majority's imposition of a new
substantiation requirement for withdrawing money from Health
Savings Accounts. The provision amends current law to specify
that withdrawals from an HSA are only tax-exempt if they are
for health purposes and ``substantiated in a manner similar to
the substantiation required for flexible spending accounts.''
Further, the bill allows Treasury to require account custodians
to report, on an annual basis, amounts withdrawn from an HSA
that were not substantiated as being for a qualified medical
expense. The provision is effective January 1, 2010.
There is simply not enough information about this issue.
The committee has not held a single hearing to examine the
issue of substantiation, and we have little or no reliable data
on the scope of any potential problem. One company has
distributed anecdotal information that suggests significant
amounts of money are being spent at non-medical merchants.
However, under current law, it is permissible to withdraw funds
from one's HSA for any purpose as long as the appropriate taxes
and penalties are paid. Unfortunately, no information has been
provided to Members that discusses whether or not any taxes and
penalties were paid.
Further, the anecdotal information provides no details on
what was purchased with the HSA funds. Clearly, it is possible
and permissible to spend one's HSA on qualifying products, such
as on prescription and over-the-counter drugs, at a grocery
store. Individuals are also allowed to reimburse themselves
with HSA funds for out-of-pocket expenses. If an HSA account
holder wishes to withdraw money from an ATM to do so, they can.
Supporters of substantiation imply that all ATM withdrawals
must be for improper purposes, but yet they presented no
evidence to support such an assumption. We are troubled,
therefore, that the Majority's proposal would attempt to
address an undefined problem, while drawing support principally
from anecdotes that do not necessarily prove noncompliance.
A new requirement that all HSA withdrawals be substantiated
would impose significant burdens on account custodians to
review transactions and make determinations about their
validity. This new obligation could expose them to liability
for decisions about whether an expense is qualified.
Substantiation could also require account custodians, many of
whom are banking institutions, to receive and review sensitive
medical information. This new requirement would then force
these institutions to comply with the complex and expensive
privacy standards outlined in the Health Insurance Portability
and Accountability Act.
Beyond the legal ramifications, a new substantiation
requirement could force HSA account custodians to eliminate
many convenient withdrawal methods, such as ATM access, because
of the difficulties associated with substantiating these types
of transactions. In a system where 90 percent of all
transactions are done electronically, substantiation could have
the unintended effect of pushing some HSA custodians away from
a paperless health care system. Either way, health insurers and
account custodians alike have indicated that this provision
will substantially increase the administrative costs associated
with Health Savings Accounts. These costs will ultimately be
passed along to account holders, meaning enrollees will spend
more money on overhead and, therefore, will have less in their
account to pay for health care. Higher costs for HSA enrollees
could lead to a reduction in the number of people in HSAs. The
program might still continue to grow, but at a slower pace than
under the current baseline.
HSAs were designed to allow consumers to be more involved
in decisions about their health care. It is a well-known fact
that paper-based substantiation systems increase the amount of
time it takes to receive reimbursements for qualified health
expenses. With other health savings programs, such as Flexible
Spending Accounts, this is less of a concern because the
consumer is using account funds to supplement existing health
coverage. However, an HSA is the consumer's primary health
coverage and all expenses must be paid for out-of-pocket at the
time service is rendered. Debit card technology was designed by
account custodians to address the uniqueness of this situation
by allowing HSA account holders to access funds to pay health
care providers immediately. If account holders were suddenly
forced to substantiate expenses before they could be
reimbursed, this could make them liable for hundreds or even
thousands of dollars in out-of-pocket costs.
It is not clear why HSAs are being singled out for
substantiation, especially since we did not hold a hearing to
establish whether there is a problem or whether this solution
is appropriate. There are many other areas in the tax code
involving more tax returns and more dollars, which do not
require substantiation. One example is the deduction for
charitable contributions, which is claimed on 40 million
returns and resulted in $39 billion in tax expenditures in
2006. We can also point to the deduction for medical expenses
in excess of 7.5% of adjusted gross income, which was claimed
on 8.9 million returns; and resulted in almost $8 billion in
tax expenditures in 2006. There is no evidence that
noncompliance with respect to HSA spending is any worse than in
these or other tax return items that do not require
substantiation by a third party, but for which a taxpayer must
provide documentation if audited.
These concerns should not be misconstrued as the minority's
support for fraudulent use of HSA funds. We certainly believe
that HSA money should be used first and foremost to cover
health expenditures. However, at the end of the day, the money
in an HSA, account belongs to the account holder. They should
continue to be able to use the money as they see fit, as long
as the letter of the law is followed and the applicable taxes
and penalties are paid.
CONCLUSION
The tax gap, estimated at nearly $300 billion per year,
can't be closed by waving a magic wand. Rather, ensuring that
all taxes owed are actually paid requires many small steps to
target facets of the problem. By terminating a proven method of
ensuring all Americans pay their fair share, H.R. 5719 takes a
giant step in the opposite direction. In addition, the
juxtaposition between the repeal of the PCA program and
imposing new burdensome HSA substantiation requirements reveals
the fickle and inconsistent nature of the Majority. The
Majority objects to the IRS using private collection agencies
yet they want the IRS to ``employ'' private administrators to
review the health spending of HSA enrollees? Surely the irony
is not lost on us. We urge our colleagues to vote against it.
Jim McCrery.
Wally Herger.
Dave Camp.
Jim Ramstad.
Sam Johnson.
Phil English.
Ron Lewis.
Kevin Brady.
Tom Reynolds.
Eric Cantor.
Devin Nunes.
Pat Tiberi.